UPDATE | 'Invalid' - Exxaro questions Transnet's force majeure

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Transnet Freight Rail continues to struggle to operate at capacity.
Transnet Freight Rail continues to struggle to operate at capacity.
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Transnet will amend railing agreements with coal exporters as the state-owned enterprise continues to struggle with persistent security and legal issues which it believes constitute a force majeure. But at least one major coal company, Exxaro, disagrees.

In a statement released by Thungela Resources, South Africa's largest producer of export coal, the company said Transnet had last week notified coal exporters with long-term coal transportation agreements that factors causing its inability to perform - such as cable theft and ongoing legal proceedings relating to irregular locomotive acquisition and maintenance contracts - are beyond its "reasonable control".

On Thursday, Transnet Freight Rail (TFR) confirmed it had commenced discussions on the terms of long-term contracts with coal export customers "due to changed circumstances beyond the reasonable control of TFR and the industry". The rail operator said this is standard business practice.

Thungela said Transnet believes that these circumstances will continue to detract from its ability to perform for at least the next six months and that, accordingly, it is under force majeure - a contractual provision that frees parties from obligation if an extraordinary event directly prevents them from performing. 

As such Transnet sought to terminate railing agreements, Thungela said. "Transnet's view is that the continued impact and duration of these factors actuate a termination right, and expressed a desire to exercise this right to terminate the agreements," the company said.

But in a statement released on Thursday afternoon, Exxaro Resources said it didn't believe TFR should be able to declare a force majeure.  

"After consultation with its legal advisors, Exxaro is of the view that the events relied upon by TFR do not constitute force majeure events, that the agreements did not terminate, and TFR's reliance on any purported termination is invalid," the company said.

Exxaro said it too had been issued with a notice from Transnet relating to force majeure and the termination of long term railing contracts. TFR has expressed the intention to finalise new five-year agreements with affected parties by 30 June, the statement said.

Exxaro said it was engaging with TFR and other stakeholders to seek a mutually acceptable resolution.

The potential impact on Exxaro cannot be determined until finalisation of the negotiations, which may result in amendments to the agreements, the company said.

Rampant cable theft and the inability to acquire critical parts for locomotives on the coal line caused the rail performance of coal delivered to Richards Bay Coal Terminal (RBCT) to drop to of 58.3 million tons in 2021, compared to its annual capacity of 77 million tons.

The continued trouble on the coal line comes as export coal prices are at historic highs and demand for South Africa coal has surged amid sanctions against Russia.

Through subsequent engagements between coal exporters and Transnet, however, the SOE has confirmed its intent to conclude an addendum to the agreements "which Transnet believes would assist [it] in addressing certain factors affecting its performance".

The coal miner said Transnet has reaffirmed its commitment to the existing material commercial terms of the agreements "and it is therefore unlikely that these developments would have any material commercial impact on Thungela".

Coal exporters, including Thungela, continue to actively engage with Transnet to clarify the contractual position and ensure the stability of coal deliveries to RBCT, the company said.

Thungela said it operational outlook for the year remains unchanged and it will continue to assess the situation and will update the market should the potential impact of this matter be determined as material to the group.

Thungela's share price dropped by more than 7% on Thursday morning. 

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