Transnet coal corridor performs miracles but that won’t be enough

The corridor won’t hit its target of 75m tons for 2024. The network is crying for fresh investment.

The new executive team at Transnet has performed miracles in arresting and reversing the decline in volumes freighted on the coal corridor. However, it still won’t reach its nameplate capacity of 75 million tons (Mt) in 2024.

Nor will that happen until serious investment is ploughed into a network groaning from decades of underinvestment and poor maintenance.

ADVERTISEMENT CONTINUE READING BELOW

Transnet Freight Rail (TFR) under CEO Russell Baatjies has performed miracles with what resources it has, says Jan Havenga, Stellenbosch University professor of logistics. There has been a turnaround in performance, with the assistance of the private sector through the intervention of the National Logistics Crisis Committee and Business Leadership SA (BLSA).

Read:
Transnet personnel changes paying off
Logistics crisis: Reaching the point of turnaround
Rail disruptions cut South African coal exports to 1992 level

“However, the turnaround in performance on the coal corridor will not be enough to reach its nameplate capacity of 75Mt. We’re a long way from that.”

Volumes on the coal corridor topped 50Mt last year, well short of the 75Mt achieved just a few years ago. That loss of 25Mt a year has cost the economy about R150 billion in potential revenue.

Also under strain are iron ore and general freight volumes, each accounting for a further 50Mt a year.

‘Don’t expect fireworks just yet’

Transnet has set itself a target of achieving total volumes in excess of 200Mt but is still a long way from that. The target for the current year is 170Mt.

“Transnet will not achieve the budget of 170Mt,” adds Havenga.

“There is no progress with restructuring the organisation and this impacts investment and rehabilitation of the assets. 

“The minister and her Department of Transport team are driving PSPs [public sector partnerships] hard and it could eventually prove beneficial for coal, iron ore, manganese and the Natal corridor, but slow progress on Transnet restructuring due to the absence of a portfolio analysis and proper financial model is holding us up. So we don’t expect fireworks just yet.”

Read:
Transnet needs R12bn, five years to revive coal export line
South Africa coal rail worsens but Thungela sees 2025 turnaround

ADVERTISEMENT: CONTINUE READING BELOW

Some 22.5Mt of coal was exported from SA via road last year, giving a total (road and rail) of 72Mt for the year.

Road volumes are trending 10Mt lower this year, mainly because of lower coal prices, which means it is no longer commercially viable for some companies to use road transport.

There has been speculation that Donald Trump’s win in the recent US election will be good for energy trade, as he is likely to dial back on ESG (environment, social and governance issues), which has been blamed for increasing the cost of energy and distorting investment into new projects – specifically, away from coal and fossil fuels and into renewables.

Read: Asset managers bet grid stocks will soar in Trump’s anti-ESG era

Energy experts point out that the US uses less coal than it did 10 years ago. Fracking output has quadrupled in the US over the last decade, with more than 81 billion cubic feet of natural gas being produced daily in 2023.

Transnet is still struggling to recover from the organisational inefficiencies inherited under previous management. This has been blamed for many of the operational inefficiencies that have occurred in recent years, such as the botched partial privatisation of the Durban Container Terminal, which is now being disputed before the courts.

Read:
Has Transnet botched the ‘privatisation’ of the Durban container terminal?
Transnet’s privatisation of Durban container port needs a do-over
ICTSI to take Durban Port court interdict on review

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.