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Transnet, BHP in R24bn take-or-pay coal export deal

Transnet CEO Brian Molefe and Becsa asset president Jon Evans

Photo by Duane Daws

Transnet CEO Brian Molefe, Transnet Freight Rail CEO Siyabonga Gama and Becsa asset president Jon Evans

Photo by Duane Daws

Becsa asset president Jon Evans

Photo by Duane Daws

Transnet CEO Brian Molefe

Photo by Duane Daws

30th September 2014

By: Terence Creamer

Creamer Media Editor

  

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South African rail utility Transnet signed its first long-term take-or-pay agreement with a domestic coal exporter on Tuesday, when it inked a ten-year, R24-billion deal with BHP Billiton Energy Coal South Africa (Becsa) at a ceremony held at Esselenpark, east of Johannesburg.

Under the arrangement, Transnet would transport some 18-million tons of Becsa coal yearly along the coal export channel to the privately owned Richards Bay Coal Terminal (RBCT), in KwaZulu-Natal.

The take-or-pay nature of the contract committed Transnet Freight Rail to providing trains as contracted, or face financial penalties. Becsa, on the other hand, was obliged to pay for the service as contracted whether or not it had product to transport.

Transnet CEO Brian Molefe said negotiations were under way with 28 other coal exporters and that similar take-or-pay agreements would be signed with these companies by November.

All RBCT exporters were expected to sign individual, ten-year contracts commencing from April 1, 2014, and terminating on March 31, 2024. Transnet Freight Rail had committed to moving 810-million tons of coal over the period.

In addition, the miners had reportedly agreed that 5% of that contracted tonnage would be allocated to emerging exporters, which would equate to a further potential 4-million tons of RBCT capactiy for new entrants – volumes that would be over and above that which had already been set aside for black economic-empowered mining companies.

Molefe acknowledged that many coal exporters were under pressure, owing to the fall in thermal coal prices, but said that the long-term contracts being pursued would provide certainty for both Transnet and the miners.

Describing the deal with Becsa as “counter cyclical”, Molefe suggested that it was robust enough for both the current weak cycle and future, stronger cycles, with tariffs sensitive to certain triggers, one being the coal price.

Becsa asset president Jon Evans, who represented the miner at the signing ceremony, also gave an assurance that the corporate restructuring currently being pursued by the larger BHP Billiton group would not in any way imperil the deal with the State-owned freight logistics group. He said the arrangement was “mutually beneficial” and would sustain exports from the Mpumalanga coalfields to RBCT “well into the future”.

Molefe revealed that the take-or-pay commitments – which it had already concluded with the iron-ore sector and were being negotiated with the coal and manganese sectors – were important to guaranteeing the utility’s revenue as it pursued a R312-billion, seven-year investment campaign, which was being partly debt financed.

Two-thirds of its investments would be directed towards modernising and expanding its railways assets and infrastructure, which included major plans to expand the coal export channel and integrate the Waterberg coalfields more fully into the coal-export corridor.

During its 2013/14 financial year, Transnet exported 68.2-million tons along the corridor, but had plans to raise the line’s capacity to over 80-million tons.

Transnet was working with Swaziland Railway on a project to construct a new line through Swaziland, which would unburden the coal corridor of all general freight, by redirecting it along the new so-called SwaziLink.

Detailed engineering was currently under way on the project and Molefe said that the group planned to “hit the ground with picks and shovels in March or April next year”.

Expanding access to the Waterberg would be conducted in phases, with an initial plan to upgrade the link from the Waterberg to Mpumalanga using existing infrastructure. At a later stage, a heavy-haul operation could be introduced, integrating both the Waterberg and Botswana coalfields.

Edited by Creamer Media Reporter

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