State-owned freight logistics group Transnet will invest nearly R1-billion to facilitate an incremental increase in coal export volumes from Limpopo’s Waterberg to 26-million tons between 2015 and 2019.

Transnet Freight Rail (TFR) CEO Siyabonga Gama indicated at the group’s recent interim results that the “interim” ramp-up phase would move ahead in parallel with a longer-term solution to increase volumes to between 40-million and 80-million tons from 2021 onwards.

This proposed heavy-haul project was still being studied and was unlikely to be included in the group’s 2015/16 business plan, which was currently being finalised by Transnet Capital Projects (TCP).

However, newly appointed TCP CEO Herbert Msagala indicated that the initial Waterberg project was expected to be included in the plan, which should be finalised in November.

The yearly business plans were informed by the larger R312-billion, seven-year Market Demand Strategy (MDS), which was currently in its third year of execution. Transnet invested a record R18.7-billion in the six months to September 30 on MDS projects and the group expected to spend a record R33-billion for the year as a whole.

Gama said memorandums of understanding had been signed with a number of coal miners in the Waterberg and that it had already signed up commitments totalling 16-million tons, some of which would “come on stream by as early as June 2016”.

He indicated that TRF was “quite confident” that the miners were serious about moving ahead with projects and said that its discussions were not limited to Exxaro, which was planning to expand its Grootegeluk operation and develop the proposed new Thabametsi mine. In fact, Gama specifically mentioned Sasol and Anglo American, which he said also had coal prospects in the territory.

The group was also not overly concerned about prospects for future coal exports as a result of lower prices, which had declined from around $80/t last year to below $70/t currently. Its confidence stemmed primarily from an unfolding transition to take-or-pay contracts with some 30 coal exporters, which Transnet indicated would be concluded by the end of November.

The ten-year contracts committed TFR to providing trains as contracted, or face financial penalties, while miners were obliged to pay for the service as contracted whether or not they had product to transport.

Transnet signed its first long-term take-or-pay agreement with BHP Billiton Energy Coal South Africa (Becsa) in September. Under the arrangement, TFR 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 contract was said to be a R24-billion deal.

Group commercial executive Khomotso Phihlela said the other deals should be concluded by the end of November deadline, with agreements having been reached in principle with all but one large miner.

Phihlela also revealed that the arrangement had facilitated the liberation of a further four-million tons of RBCT capacity for junior miners, which would raise the Quattro terminal’s overall capacity for smaller exporters to eight-million tons.

This additional capacity could be further enhanced by RBT Grindrod’s Navitrade terminal, which currently had a capacity of about 3.5-million tons. However, there were plans to expand the terminal incrementally to up to 20-million tons. For this reason, Transnet was no longer considering a competitor terminal at Richards Bay, but was rather focusing on projects to improve the rail interface between RBCT and Navitrade.

During the interim period, TFR railed 43.7-million tons of coal to Richards Bay and expected to rail 74.2-million tons for the year as a whole.

Mind the Gap
TFR also confirmed that it had bought 34 second-hand diesel locomotives from rail company Aurizon, of Queensland, Australia, to augment its ageing fleet ahead of the introduction of around 1 400 new locomotives by 2019.

Gama refused to provide a bought figure, saying only that each locomotive cost between A$180 000 and $230 000, depending on the condition of the unit.

The locomotives, which are about 20 years old, would be based in Bloemfontein and would be used by the general freight business to close a capacity gap that had arisen as a result of an 18-month delay to the ‘1064 acquisition programme’, which was concluded in March.

Under the R50-billion programme, General Electric South Africa Technologies would supply 233 diesel locomotives and CNR Rolling Stock South Africa would supply 232 diesel units. In addition, CSR Zhuzhou Electric Locomotive would supply 359 electric locomotives, while Bombardier Transportation South Africa would supply 240 electric locomotives.

Transnet also confirmed that it had retired 26 locomotives during the last six months, which was a major contributor to a R653-million impairment charge during the interim period to September.

Gama said TFR had locomotives that were over 48 years old, many of which would need to be scrapped. “So we bought some second-hand locomotives from Australia . . . to assist in tiding us over in terms of capacity.”

An additional 86 electric and 19 diesel locomotives would be added to TFR’s fleet in 2015, but the bulk of the 1064 locomotives would be introduced between 2016 and 2019.