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Coal exporters discussing agreements with Transnet following force majeure notifications

An image showing coal stockpiled for export at the Richard's Bay coal terminal, in Richard's Bay

Coal miners remain in discussions with Transnet Freight Rail regarding the contractual terms of long-term coal transportation agreements

Photo by Bloomberg

14th April 2022

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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Coal miners Thungela Resources and Exxaro Resources have reported in separate statements that they remain in discussions with Transnet, through its Transnet Freight Rail (TFR) division, regarding the contractual terms of long-term coal transportation agreements.

TFR on April 8 notified coal export parties (CEPs) with which it has long-term coal transportation agreements that the factors previously communicated to the market regarding its inability to perform services at its stated system capacity – such as the ongoing legal proceedings relating to the irregular locomotive acquisition and maintenance contracts, as well as the rife vandalism on the coal line – continue and are beyond its reasonable control.

TFR believes these circumstances will continue to detract from its ability to perform for at least the next six months.

Thungela states that TFR has reiterated its commitment to continue providing rail services and has recently confirmed its commitment to work with the CEPs and the Richards Bay Coal Terminal (RBCT) to optimise and improve its performance.

The CEPs, including Thungela, are accordingly engaging actively with TFR to clarify the contractual position and ensure the stability of coal deliveries to RBCT to continue to take advantage of the current strong market demand for South African coal, the company says.

“Through these engagements, Transnet has confirmed its intent to conclude an addendum to the agreements which Transnet believes will assist it in addressing certain factors affecting its performance, but reaffirmed its commitment to the existing material commercial terms and it is therefore unlikely that these developments would have any material commercial impact on Thungela,” the company says.

With coal rail services and export sales continuing, notwithstanding the ongoing discussions between the CEPs and TFR, Thungela does not currently envisage this development to have a material impact on the group’s 2022 operational outlook.

Thungela says it continues to engage with TFR to clarify its contractual position.

Exxaro, meanwhile, says TFR had served Exxaro’s subsidiaries with letters stating that, owing to circumstances beyond TFR's reasonable control, it has been unable to perform a substantial part of the services it was contracted to.

Relying on certain force majeure provisions contained in the long-term rail transportation agreements, TFR notified that those agreements for the transportation of coal to the RBCT have terminated.

Exxaro says TFR has expressed the intention to finalise new five-year agreements with affected parties by June 30.

TFR indicated that, during this period, Exxaro's allocated capacity will remain in effect until a new agreement is concluded and that it will continue to render transport services to Exxaro in terms of its standard conditions of carriage.

After consultation with its legal advisers, 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.

However, Exxaro and the other CEPs are engaging with TFR and other stakeholders to discuss this matter and to seek a mutually acceptable resolution, the company said.

Both Exxaro and TFR have expressed their intention to negotiate in good faith to address the issues of concern to TFR.

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

THUNGELA SHARES

Meanwhile, the Public Investment Corporation (PIC) has again increased its holdings in Thungela to 11.22%.

This follows less than a week after having increased in shareholding in Thungela to 9.925% on April 8, from 8.033% previously.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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