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South Africa’s coal miners struggle to cash in on Russia sanctions

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South Africa’s miners should benefit from rising coal demand, but many are unable to take advantage of Europe’s search for alternatives to Russian fuel due to the country’s deteriorating infrastructure.

Prices for South Africa’s benchmark export grade coal have doubled since the beginning of the year as European countries stockpile alternative coal sources ahead of a ban on Russian imports from the EU later this year as part of Ukraine war sanctions. In the future, the EU will allow more fossil fuels to be burned to replace Russian oil and gas.

However, massive copper cable theft and a train shortage caused by corruption under former President Jacob Zuma, who resigned under a cloud of scandal in 2018, have caused problems for Transnet, the state freight operator. “We are simply unable to meet our contractual obligations in terms of the volumes of coal that [miners] must move,” said Portia Derby, Transnet’s chief executive.

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“It’s happening all over the world — supply chains are being stretched,” African Source Markets CEO Bevan Jones said. South Africa, on the other hand, has “scored a couple of own goals as a result of Transnet and the rail line.”

According to Jones, South African coal is a good substitute for Russian coal, but the country only exported 2.9 million tonnes to Europe last month. According to coal analyst Xavier Prévost of XMP Consulting, the year’s total could be no more than 40 million tonnes at that rate. Last year, South Africa exported 58 million tonnes through the Richards Bay coal terminal, the lowest since the 1990s and well below capacity. The rail line from Ermelo to Richards Bay has a capacity of 77 million tonnes, and the port has a capacity of 91 million tonnes.

According to the South African Mineral Council, mining companies lost 35 billion rand ($2 billion) in revenue last year due to the inability to 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,” Mesela Nhlapo, the African Rail Industry Association’s chief executive, said of Transnet.

Transnet says it’s doing everything it can to get things back up and running. “The mining industry accounts for about 80% of our revenue, and coal accounts for a large portion of that, so moving coal is in our best interests,” Derby said.

The freight operator is also short on coal trains, which is a direct result of President Jacob Zuma’s systematic looting of government resources, known as’state capture,’ before he was deposed and replaced by Cyril Ramaphosa.

Transnet agreed to pay 54 billion rand for over 1,000 locomotives from Chinese and Western manufacturers during Zuma’s presidency. According to a judicial investigation, the deal was overpriced and riddled with kickbacks, and nearly a decade later, only about half of the trains have been delivered. Because of the need for specialised rolling stock, “coal is fundamentally the most affected” by train shortages, according to Derby.

South African miners have rejected Transnet’s declaration of force majeure, including Exxaro and Thungela, a spin-off of Anglo American’s former local coal operations. They’re working with the operator to come up with a solution.

Exporters have few options for transportation. “Finding a truck anywhere right now is a problem. They’re as scarce as hen’s teeth right now. “It’s insane,” Jones said.

Other African coal-producing countries may benefit from European sanctions against Russia. According to Grindrod, the terminal operator, a port in Mozambique received coal from landlocked Botswana destined for Europe this week, marking a milestone for a new export route. According to analysts, coal from Botswana is also being trucked to Namibian ports.

Despite the immediate need to replace Russian coal, Europe is still moving away from fossil fuels in the long run. According to Jones, this year’s rush to buy South African coal will not last, and the country’s export future lies in Asia. However, the surge has highlighted the fact that decarbonisation will be difficult in both Europe and Africa.

Last year, European countries joined the United States and the United Kingdom in pledging $8.5 billion in funding for renewable energy in South Africa in exchange for the country’s plans to phase out coal. The conflict in Ukraine has made the transition more difficult. “Europe is being incredibly hypocritical by saying we want your coal but you guys should be decarbonizing,” Jones said.

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