Transnet: Eskom hungry for coal

“Indications are that the demand for the transportation of coal to Eskom’s power stations will grow from seven million tons to 30-million tons by 2019,” CEO Brian Molefe forecast on Tuesday in a submission to Parliament’s portfolio committee on economic development.

“The above opportunity has arisen out of Eskom’s consumption for their power stations as well as Eskom’s strategy to migrate coal traffic from road to rail.”

Eskom’s two new coal-fired plants Kusile and Medupi were expected to come online from late 2013. They are respectively the third and fourth biggest coal-fired plants in the world.

Transnet had consolidated its freight rail’s coal business into a single unit serving the domestic and export markets, and its seven-year expansion programme would see export capacity ramped up to 97-million tons a year.

Molefe said the coal line upgrading required 110 dual voltage locomotives, of which 95 had been put into operation.

He said the logistics utility’s R300-billion expansion plan would also see its manganese handling capacity expanded to 16-million tons.

Plans to achieve this include doubling 232km of line between Kimberly and De Aar and building an expanded port terminal in the port of Ngqura, in a bid to grow South Africa’s 20% market share in the metal.

Adjusting expectations
Molefe maintained that Transnet would fund 70% of the programme to expand rail, port and pipeline infrastructure from its operating profits and would manage to source the rest from capital markets.

He conceded, in response to questions from MPs, that the ongoing European debt crisis could yet force the logistics utility to adjust its expectations.

“The R200-billion will be funded from the reinvestment of our profits. The R87-billion, or R86.5-billion over a seven year period, will be funded in the markets.”

In the current financial year, Transnet’s borrowing requirements would be about R14.1-billion.

This would escalate to R15.6-billion the following year and peak at an unprecedented R20.5-billion in 2015/16, Molefe said.

In that year, 20% of the money was expected to come from commercial paper, 34% from domestic bonds, 29% from development finance institutions, the export credit agencies and a general medium-term note (GMTN), and 17% from bank loans and other forms of finance.

“We have already established benchmarks in the euro market and the dollar market. If these sources of funding are not enough we will consider a second issuance of GMTNs, we will consider private placement or we can do fellow funding with export credit agencies,” Molefe said.

Infrastructure expansion
“So we don’t think there is a problem in the funding.”

Molefe said by the seventh and final year of the infrastructure expansion drive Transnet would have a negative funding requirement, or positive cash flows of about R7.1-billion.

He said the expansion programme would put 220 000 jobs into the economy, not well over 500 000 as reported.

“We will create employment for 588 000 people [but] I must qualify this.”

The figure would include the current total of 368 000 jobs linked to Transnet’s operations. This consists of 59 000 jobs within the company, 145 000 indirect jobs and 164 000 in the wider economy.

“At the moment our impact in the job market as Transnet is about 368 000 people ... by 2016/17 at the height of the MDS [market demand strategy] the additional jobs that will be created are 220 000.”

Molefe said Transnet hoped to create 15 000 direct jobs – bringing its staff component up to 74 000 – and to spend R7.6-billion on training in the seven years spanning its expansion programme.

The programme’s projects to be concluded by then include expanding port facilities in Durban, Richard’s Bay, East London, Ngqura and Saldanha, completing a multi-product pipeline and maximising the iron-ore export corridor. – Sapa

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