Transnet, BHP Billiton sign R24bn deal

2014-09-30 17:28

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Transport parastatal Transnet and coal mining company BHP Billiton have signed a 10-year R24 billion coal transporting contract.

“We hope that this will go a long way. This investment is over the life of the locomotives we are buying,” Transnet group executive Brian Molefe said at a press conference where the contract was signed today.

“We need to be able to go back to our funders to show them that we have a revenue agreement. We are all putting our necks on the block and committing for 10 years.”

Molefe signed the contract with BHP Billiton energy coal asset SA (BECSA) president Jon Evans.

It was a “massive boost” for the transport parastatal’s capacity expansion programmes on the export coal line, he said.

The contract entails transporting coal from BHP Billiton’s Mpumalanga operations to the Richards Bay Coal Terminal (RBCT), and from there to international markets.

Over the next seven years Transnet would add close to eight million tonnes of coal to the line, from the current 73 million to 81 million tonnes.

The agreement with BHP equates to a contract value of approximately R2.4 billion a year, or R24 billion over the 10 years, said Molefe.

In March, Transnet announced it secured a R3 billion loan for its rail contract to manufacture 1064 locomotives. The money would be used to finance the recently awarded R50bn contract to build the locomotives.

Evans said coal exports were a significant contributor to South Africa’s gross domestic product and a key earner of foreign exchange.

Evans said the agreement would help ensure the long-term viability of both BECSA and the coal industry.

Molefe said Transnet was confident that more mine companies would sign.

He said the take-or-pay contract and others of its kind were crucial to Transnet’s capital investment.

Take-or-pay means Transnet will provide the trains and a customer is obliged to pay, whether they have a product to transport or not.

“This is a long-term agreement that we are committed to,” he said.

He said contracts with the remaining 28 customers should be finalised by the end of November.

All exporters through the RBCT will sign individual 10-year contracts.

Transnet Freight Rail has committed to moving 810 million tonnes of coal over the period.

Molefe said Transnet was confident the agreement would not compromise Eskom in any way.

“I don’t think it will cause a problem for Eskom because there is quite a lot of coal that is still in reserves,” he said.

“We think we will be quite comfortable for the next 200 years in terms of coal.”

The contract for the locomotives was awarded to four manufacturers in March. CSR Zhuzhou Electric Locomotive and Bombardier Transportation SA would supply 599 electric locomotives, and General Electric SA Technologies and CNR Rolling Stock SA (Pty) Ltd would build and supply 465 diesel locomotives.

All the locomotives, except 70, would be built at Transnet Engineering’s plants in Pretoria and Durban.

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