JOHANNESBURG (miningweekly.com) – State-owned transport utility Transnet has finally accepted the bulk of the blame for the ongoing underperformance of the export coal line from Mpumalanga province, to the port of Richards Bay, in KwaZulu-Natal, which recorded its fifth straight year of volume decreases in 2009/10.

Acting CEO Chris Wells admitted on Thursday that the disappointing performance was primarily the fault of Transnet Freight Rail, notwithstanding the softening of the coal export market in line with the recession and some seasonal factors that affected delivery from the mines themselves.

The matter has been the subject of something of a public blame game between the freight logistics group and South Africa's coal miners since 2005, during which period the export channel has not once operated at its 71-million-ton a year nameplate, and volumes have consistently decreased.

The line disappointed yet again during Transnet's 2009/10 financial year, when 61,8-million tons of the material, which is used to fuel power stations in Asia and Europe, was moved - it was also the line's worst performance in five years.

In fact, volumes have slipped by 3% on a compound yearly basis between 2006 and 2010, falling from 68,8-million tons in 2005/6 to a dismal 61,8-million tons in 2009/10.

"Export coal has not been a good story for the past five years," Well lamented, adding that the line had been in persistent decline from the world-class levels achieved during 2004/5.

However, he said that the group was "determined" to turn the line around and "move coal onto a growth trend", noting that during the final quarter of the financial year to March 31, 2010, volumes were increased by 6,3%.

Transnet was working with the coal industry to close the gap between the current performance and the available capacity of close to 70-million tons, as well as on a plan to raise throughput to 81-million tons by 2014/15 and beyond that level, to between 90-million tons and 100-million tons, at a later stage.

However, the R15-billion project necessary to achieve that target would depend on it securing take-or-pay contracts from the coal miners, which would only participate if they were confident about market prospects and if they were able to secure sources of supply.

The privately held Richards Bay Coal Terminal had recently been expanded to handle 91-million tons, but wells said that rail was only one impediment to matching that capacity, with an inadequacy of mining capacity being the other.

Currently, the coal miners were also on short-term tariff contracts with Transnet while the details of the expansion plans were being considered.

IRON-ORE AND MANGANESE

By contrast, the utility had already signed take-or-pay contracts with the Kumba Iron Ore and Assmang to raise throughput to 60,7-million tons by 2013/14.

In 2009/10 the export volumes on the iron-ore line from Sishen to Saldanha Bay grew by 21,5% on the previous year to 44,7-million tons and plans were in place to rail some 50-million tons in 2010/11.

"We are also in talks with the iron-ore and manganese miners about the next big expansion," Wells said.

The iron-ore industry would like to increase its yearly exports to 80-million tons, while the manganese miners, which were currently restricted to yearly exports of seven-million tons, through Port Elizabeth and Durban, were keen to raise that to beyond 14-million tons.

The manganese industry is keen to piggyback on the Sishen-Saldanha success and export this additional tonnage through the West Coast harbour, but Transnet was still considering a plan that involved exports through the new Ngqura harbour, in the Eastern Cape.

Wells said that there was still no finality on which route would be selected, but stressed that the feasibility studies were being conducted jointly with the industry, with the support of an independent consultant.

He said that the project would involve capital expenditure well in excess of the R15-billion required to expand the coal channel.

In fact, Transnet is hoping to pursue both the iron-ore and the manganese expansion under its private sector partnership (PSP) scheme, which still required sanction from its shareholder.

However, the PSP plan is anticipated to be opposed by some elements of the governing political alliance of the African National Congress, the South African Communist Party and the Congress of South African Trade Unions (Cosatu). Cosatu, in particular, is likely to oppose any move that could be perceived as an effort to privatise the country's rail, ports and pipelines.

But Transnet said that it did not want to be an impediment to the growth in mineral exports, such as coal, iron-ore and manganese, as it has been previously, owing to its balance sheet constraints.

A separate PSP unit had already been established to create the capacity to pursue public-private partnerships, but Wells said that he could not discuss project details until its PSP approach had been approved by its board and its shareholder.

In fact, given the political sensitivities surrounding the model, it was likely that Cabinet would have to endorse the proposal - a process that Transnet hoped would be completed during 2010.

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