Municipalities owe Eskom R49.1bn and counting … Exxaro volumes dented again by Transnet railway woes

DEPUTY President David Mabuza has warned that South Africa’s municipalities continued to owe Eskom billions of rand in outstanding debt, crippling the struggling power utility’s financial position further. Mabuza yesterday told Parliament that the total debt owed to Eskom by various municipalities had ballooned by nearly R5 billion in just four months up to July.

“Debt owed by municipalities to Eskom remains a major challenge to the entity’s financial stability,” Mabuza said.

“Debt owed by municipalities by Eskom has since grown from R44.8 billion to R49.1bn between March and July 2022. This is not a desirable state of affairs for Eskom and municipalities.”

Mabuza was answering oral questions from Members of Parliament in the National Council of Provinces in his capacity as the chairperson of the Political Task Team on Eskom.

He was also updating Parliament on progress by the government’s National Energy Crisis Committee in improving energy security following severe breakdowns at Eskom’s ageing power plants.

Mabuza said the committee continued to help Eskom improve revenue collection and enter into service-level agreements with municipalities.

This includes Maluti-A-Phofung local municipality in the Free State, which owes Eskom R6.5bn.

Mabuza said that while successful debt recovery from municipalities would help Eskom reach its savings target of R61.8bn by 2023, they would not necessarily reduce electricity tariff increases.

However, he said the savings would help Eskom to absorb the increase in diesel costs and the wage bill.

“Eskom is suffering because consumers are not paying for electricity and there are many illegal connections.

“We need to encourage people to pay for the services they receive, for the sustainability of Eskom,” Mabuza said.

“As part of internal cost efficiencies and equity conditions, a cost savings target of R21.4bn for the 2023 financial year, and a cumulative R61.8bn over the medium-term of 2020 to 2023, has been set by Eskom.”

Mabuza also said the government was taking every step to make sure that Eskom was supported in its bid to stabilise the national grid and ensure energy security. “The political task team was also seized with expanding the correction of plant defects at Medupi and Kusile power stations in order to ensure that the grid has an additional 1 000MW of base load capacity to address the load shedding problem,” he said.

Mabuza acknowledged that even though strides have been taken to assist Eskom in keeping the lights on, some challenges remained.

“In the main, challenges [are] set around the limitation of the ageing fleet (and) inability to keep up with the demands of unplanned maintenance and repairs. Inevitably, inadequate energy capacity (has) resulted in declined energy availability.

“This led to the sustained power outages in the month of July, thereby attracting public backlash and that prompted the urgent dedicated Cabinet discussion on further extraordinary measures to immediately bring to a halt what was becoming a perennial national electricity supply challenge.”

COAL PRODUCER Exxaro Resources said yesterday that its earnings grew by 75 percent for the six months to end June, boosted by surging coal prices as it flagged that Transnet Freight Rail’s logistic woes were putting a brake on its sterling performance.

Headline earnings per share rose by 75 percent to R34.26 per share, up from R19.61 per share in the second half of last year. Exxaro declared an interim dividend of R15.93 per share. The group said it had a strong balance sheet and was cash-flush.

The results come as coal miners BHP, Thungela Resources and Glencore this month are also delivering bumper interims on buoyant coal prices.

Exxaro said its revenue increased by 48 percent to R22.3 billion, compared to R15.1bn in the first half of 2021, mainly due to the exceptional performance of its coal business driven by higher sales prices and higher sales volumes, despite logistical challenges.

“During the first half of 2022, international coal prices reached a record high driven by the Russian-Ukraine conflict and the ban on Indonesian coal exports. “Global trade flows were edward.west@inl.co.za

GRINDROD saw good earnings growth in the six months to June 30 off the back of strong mineral commodity markets, good growth in volumes through Maputo port and favourable net interest margins at Grindrod Bank.

Its management predicted a surge in headline earnings to between R389 million and R419m from only R4m at the same time a year before.

Core headline earnings were forecast to increase by between 49 and 58 percent to between R514m and R544m.

Its and terminals business achieved earnings growth of more than 100 percent compared with the prior six months, the group said in a trading statement yesterday.

Maputo Port volumes grew by 30 percent to 12.3 million tons. The port commissioned its upgraded berth infrastructure of six berths, raising capacity from 24.5 million tons in 2018 to 36.4 million tons.

The port spent $110.3m (R1.62 billion) on chrome and ferro-chrome slab capacity expansion, rail offloading facility construction, port road infrastructure upgrade and berth rehabilitation.

Grindrod’s dry-bulk terminals grew volumes handled by 52 percent, despite disruptive weather challenges, frequent power outages, fire-damaged conveyor belt infrastructure in Richards Bay, and a loss of 20 vessel loading days in Matola due to its berth infrastructure incident.

The Matola terminal grew volumes 24 percent to 3.8 million tons compared to the prior period.

The Maputo terminal grew its volume throughput capacity by 25 percent to 3 million tons and handled 1.3 million tons compared to 41 000 tons in the prior period. Volumes handled in Richards Bay grew 28 percent.

Grindrod’s Maputo Car Terminal volumes grew 35 percent against the affected, increasing demand from Europe for South African high-quality coal to reduce the dependency on Russian coal.

“In stark contrast to the increased demand from Europe, the higher coal prices reduced demand from Asia, especially from India and Pakistan, due to affordability factors.

“This also eroded demand for low CV (calorific value) coal as they opted for cheaper sources of supply, widening the discounts across all low CV products,” Exxaro said. prior period because of increased transshipments and higher domestic demand for the second hand vehicles.

The facility continues to benefit from project cargo storage. The coastal shipping and container depot businesses performed well in the challenging operational environment.

All its container depot facilities in Durban were affected by floods in April resulting in damages at carrying value of R51.4m, which had been impaired. Interim asset insurance claim proceeds of R100m were recorded. This will be used to replace damaged equipment and the infrastructure.

The 75 000 square metre container park development project in Denver, Johannesburg, where the group had spent R118.4m, was gaining momentum

But Exxaro is hampered from taking full advantage of high prices due to logistic woes.

In an interview, Nombasa Tsengwa, Exxaro’s new chief executive, who assumed her position on August 1, said: “It was a very strong, solid set of results.

The last six months have been tough from the market dynamic point of view (with) lots of changes in our economy in terms of the energy demand and challenges that we have been facing.

“Overall, a very good set of results on the back of a good product mix from a coal perspective.

“There was lots of innovation from our marketing team in terms of how they managed the logistics, despite the Transnet Freight Rail (TFR) challenges that we all know about. Also, the prices come into play,” she said.

This as the rail operations of stateowned TFR have been hit by cable theft, vandalism, sabotage and a shortage of locomotives, which has caused financial loss to Exxaro and its peers, owing to the low railage volumes of coal as a result.

Exxaro said there were three derailments in the second quarter of 2022, negatively impacting the Mpumalanga region’s performance.

“Discussions by Exxaro and the industry are continuing with TFR to and on track to be completed in the second half of 2022.

The Northern Mozambique graphite operations and the Clearing and Forwarding business delivered solid results. Grindrod’s rail business showed an improvement in locomotive deployment.

Grindrod Bank reported healthy earnings growth underpinned by the higher interest rate environment.

Grindrod Bank’s liquidity surplus at the end of June 2022 was R6bn, which was achieving good yields under the current higher interest earning environment, resulting in no negative carry.

Grindrod Bank maintained a stable lending book of R8.3bn and achieved deposit book growth of 4 percent, to R11.7bn, compared to December 2021. resolve contractual challenges and to improve rail performance,” it said.

Brand marketing manager Sakkie Swanepoel said TFR indicated to the industry that they had the capacity to probably do only 16 million tons a year for the next two years.

“After we (did) 58 million tons in 2021, year-to-date we are sitting at 54 million tons annualised. Unfortunately we have moved back from where we were in 2021.

Looking forward, towards the end of the year we are not seeing anything yet that is giving us confidence that we are on a new trajectory.

“We remain very cautious and understand that things are not going to change in the short term. We will continue to work with TFR.

“We need to put a big focus on those things that are under our direct control. The energy is to see what we can do instead of looking at what TFR is doing.

“I think we will see a better result in the second half,” he added.

Anchor Capital investment analyst Seleho Tsatsi said: “Earnings and earning before interest, taxes, depreciation and amortisation are up strongly thanks to higher prices in Exxaro’s export thermal coal business, which has more than offset the decline in iron ore earnings.”

Marine Fuels earnings were up from the prior period due to the strong oil market. Management continues to work with the Marine Fuels management and co-shareholder to exit this investment.

The private equity portfolio exit is largely complete with only one significant asset remaining. Disposal proceeds of R152.1m realised during the current period were applied to settle private equity debt.

In early April 2022 the fuel carrier fleet in Botswana was disposed of, marking the completion of Grindrod’s exit from the fuel and automotive carrier transportation businesses.

The disposal of Grindrod Bank to African Bank for R1.5bn was ongoing, with all parties focused on fulfilling the conditions precedent.

FORTRESS, with R44.9 billion of property assets and which tried unsuccessfully to collapse its dual share structure at a shareholder meeting on Wednesday, said yesterday that it was unable to comply with minimum distribution requirements of a real estate investment trust (Reit) and it was engaging with the JSE to manage the process.

“Fortress’s memorandum of incorporation prevents payment of a distribution where distributable earnings is less than the Fortress A distribution benchmark, in respect of that period, which is the case for both the interim and final six-month periods of FY2022,” the company, which is also South Africa’s biggest logistics real estate developer and land owner, said yesterday.

Although the scheme to collapse the dual share structure was “supported by more than 60 percent of each of the ‘A’ and ‘B’ shareholders, the scheme did not achieve the necessary approval threshold of 75 percent,” Fortress said yesterday.

The plan, had it gone ahead, would have resulted in the collapse of Fortress’s dual share structure and the removal of the restrictions on paying distributions. It would also have allowed Fortress to pay a distribution and meet its Reit obligations in respect of its year ended June 30, 2022, and it would have allowed the Reit, at its board’s discretion, to maintain a six-monthly distribution cycle paying out 100 percent of distributable income.

Fortress’s board also believed it would have resulted in a positive re-rating of the “B” Fortress share, which would have been the only share in issue. In the scheme circular, Fortress noted that shareholders indicated an understanding of the need to collapse the dual share structure. “However, there was a wide gap between ‘A’ and ‘B’ shareholders as to what exchange ratio they considered to be fair,” the company said.

Fortress said the proposed scheme had been at an exchange ratio that was informed by detailed analysis and assessment of information and valuation metrics and found to be fair and reasonable by an independent expert.

Individual shareholder activist Albie Cilliers said there were many conflicting interests among the shareholders that voted on Fortress’s plan to collapse the dual share structure, and given the large number of shares that voted against, it was likely to have included the Public Investment Corporation. He said he anticipated the JSE would likely adopt an accommodative stance so Fortress could resolve its Reit listing dilemma.

Fortress’s B share closed 4.53 percent higher at R4.15 on the JSE yesterday.

A few years back, the group’s logistics property development pipeline was about one million square metres and by the end of December there was only 360 000 square metres of the pipeline that wasn’t under construction or had already been developed.

LOGISTICS