Financial Times perspective: SA’s coal miners struggle to cash in on Russia’s sanctions

Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.From the FT: South Africa's coal miners struggle to cash in on Russia's sanctions.Demand and prices soar but historic corruption and poor infrastructure hobble export opportunities.By Joseph Cotterill of The Financial Times .Rising demand for coal should be a boon for South Africa's miners but many cannot take advantage of Europe's search for alternatives to Russian fuel because of the parlous state of the country's infrastructure..Prices for South Africa's benchmark export grade coal have doubled since the start of the year as European countries buy up alternative sources of coal ahead of a EU ban on Russian imports later this year as part of Ukraine war sanctions. The EU will also permit more burning of the fossil fuel to replace Russian oil and gas in years to come..But massive theft of copper cable and a shortage of trains owing to corruption under Jacob Zuma, the former president who resigned under a cloud of scandal in 2018, have caused problems for Transnet, the state freight operator. "We are just not able to meet our contractual obligations in terms of volumes of coal that [miners] must move", Portia Derby, chief executive of Transnet, told the Financial Times.."It's happening all around the world — supply chains are being stretched," Bevan Jones, chief executive of African Source Markets said. But South Africa has "scored a couple of own goals because of Transnet and the rail line"..South African coal is a suitable replacement for Russian coal, Jones said, but the country exported just 2.9mn tonnes to Europe last month. At that rate the year's total could be no more than 40mn tonnes, said coal analyst Xavier Prévost of XMP Consulting. South Africa exported 58mn tonnes through the coal terminal at Richards Bay last year, the lowest since the 1990s and well below capacity. The rail line from the mining town of Ermelo to Richards Bay can carry 77mn tonnes and the port can hold 91mn tonnes..South Africa's mineral council has said that mining companies lost out on 35bn rand or over $2bn in revenue last year because they could not transport bulk commodities such as coal that they had contracted to sell. "It doesn't make sense why one entity is costing the country so much," said Mesela Nhlapo, chief executive of the African Rail Industry Association, referring to Transnet..Transnet says it is doing everything it can to restore operations. "About 80 per cent of our revenue comes from the mining industry, and of that, a huge portion of our profitability comes from coal — so it is in our interest to move coal," Derby said..The freight operator is also short of coal trains, a direct legacy of the systematic looting of government resources known as 'state capture' under Zuma, before he was ousted and replaced as president by Cyril Ramaphosa..During Zuma's presidency, Transnet agreed to pay 54bn rand for more than 1,000 locomotives from Chinese and western manufacturers. The deal was overpriced and riddled with kickbacks, according to a judicial inquiry, and nearly a decade later only about half of the trains have been delivered. "It is fundamentally coal that is most affected" by these train shortages because of the need for specialised rolling stock, Derby said..South African miners such as Exxaro and Thungela, the spin-off of Anglo American's former local coal operations, have rejected Transnet's declaration of force majeure. They are in discussions with the operator to find a solution..There are few transport alternatives for exporters. "Trying to find a truck now anywhere is an issue. They're like hen's teeth at the moment. It's crazy," said Jones..European sanctions on Russia could help other African coal-producing countries. This week a port in Mozambique received coal from landlocked Botswana that was destined for Europe, a milestone for a new export route, said Grindrod, the terminal operator. Coal from Botswana is also being trucked to ports in Namibia, analysts said..Despite the need to replace Russian coal in the short term, Europe is still shifting from fossil fuels in the long run. That means this year's rush to buy South Africa's coal will not last and the future of its exports lies in Asia, Jones said. But the surge has underlined that decarbonisation will not be straightforward in either Europe or Africa..Last year European countries joined the US and UK to pledge $8.5bn in funding for renewables in South Africa in return for speeding up its plans to phase out coal. The war in Ukraine has complicated that transition. "It is super hypocritical of Europe to say we want your coal, but you guys should be decarbonising," Jones said.

Financial Times perspective: SA’s coal miners struggle to cash in on Russia’s sanctions

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Financial Times perspective: SA’s coal miners struggle to cash in on Russia’s sanctions