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Logistical failures threaten our strategic interestsThe jet fuel shortages at OR Tambo International Airport in Johannesburg several weeks ago and the ongoing saga of state power utility Eskom’s coal supply problems – both with implications in the logistics and transport sphere – are but two critical warnings to South Africa to step up efficiency in its strategic supply chains.
As seen in both instances, one simple glitch can cost the country billions and pose a serious threat to South Africa’s strategic interests.
In the jet fuel debacle, as is the case with coal supplies – relating also to Eskom’s electricity crisis – there appears to be a serious lack of synchronisation between the various role-players in the strategic supply and logistics chain.
In both instances, the name of Transnet Freight Rail also crops up as part of the problem rather than the solution despite Transnet’s ambitious R78-billion capital investment programme to upgrade and modernise its services and systems.
Several weeks ago, Energy Minister Dipuo Peters appointed a task team to investigate why Airports Company of South Africa (Acsa) had to ask airlines using OR Tambo International, Africa’s busiest airport, to voluntarily cut back their jet fuel use by 30%, as the airport’s normal five- to six-day reserves level had dwindled to a dangerously low two-day level. Voluntary co-operation of airlines using OR Tambo avoided catastrophe, but airline executives are concerned that it could happen again with far worse consequences. It was not the first time the airport has been affected by fuel shortages.
About 70% of OR Tambo’s jet fuel supplies are moved by Transnet Pipelines (TPL) from the Natref refinery in Sasolburg – which is jointly owned and operated by Sasol Limited and Total South Africa – to the airport. The other 30% is moved by Transnet Freight Rail (TFR).
While both Sasol’s Natref Refinery and Transnet’s freight rail and pipeline services had experienced problems and shutdowns immediately prior to the OR Tambo crisis, both Transnet and Natref deny responsibility – pointing fingers at each other.
Which begs the question: Why did Acsa not insist on emergency road tanker transport when it saw its reserves starting to fall?
All of this suggests a glaring lack of transparency, accountability and co-operation by stakeholders on all sides, which poses a serious threat to South Africa’s strategic interests.
Similar logistical problems surfaced during Eskom’s power crisis last year when coal supplies ran dangerously low. Most of it was blamed on weather conditions causing coal to be wet, but these had much to do with the overall logistical picture.
According to Eskom’s operations head Brian Dames, South Africa needs investment of up to R40 billion in at least 40 new coal mines to prevent coal shortages that will affect electricity supply and costs over the long term. Dames said Eskom’s demand had been increasing by 5% per year while production had remained constant.
Dames added that there needed to be further investment in the logistics of transporting coal to power stations. And therein lies the rub.
With coal sources far from power stations and rail transport being inadequate, excessive volumes of coal are being transported by road. This has caused Dames to warn that once the trucks stop running, there will be no more power.
Future coal supplies are concentrated in the Waterberg region in Limpopo. But there is insufficient infrastructure to transport coal from there to Eskom’s 11 largest power stations, eight of which are situated in Mpumalanga. And a lack of water resources in Limpopo rules out the building of power stations in the Waterberg area near the coal source.
Already in July 2007, Susan Olsen of the United States-based Wingfield Consultancy that had been contracted by Eskom, warned in a confidential memo to Eskom boss Jacob Maroga of the consequences of Eskom’s looming coal supply crisis.
At the time, two major coal-fired power stations were without long-term coal contracts and the other eight existing contracts had not been renegotiated.
While Eskom failed to do its homework in respect of coal supply contracts, Olsen points out that already during the preceding five years, Eskom’s ageing power plants were operating at capacity and severely stressed availability rates.
She listed various areas of concern within Eskom, among these a lack of experience “to grasp the basics of commercial negotiations”, lack of international best practice, failure to enforce quantity provisions, poor quality controls and no ability to audit and track coal from mine to boiler.
Olsen said, however, that the problems could be fixed within 18 months, but Eskom apparently ignored the advice six months prior to the rolling blackouts in early 2008.
According to Maroga, Eskom was aware of the weaknesses in its coal contracts before Olsen’s report. But Maroga said he had nonetheless passed on the report to two managers, but did not say what happened thereafter.
Maroga has, however, said that Eskom’s coal problems were caused by pricing and logistics at the time when load shedding occurred in late 2007 and 2008 when there had been low coal stockpiles and problems with wet coal.
But a major headache is the state of infrastructure and related issues in transporting coal to Eskom’s power stations.
Maroga says among the various risks to which Eskom is exposed, is the ongoing issue of road transport of coal in Mpumalanga. He says the risk would deepen if the economy were to stage a quick recovery.
Responding to Olsen’s criticisms that Eskom appeared incapable of managing its coal procurement, Dames said Eskom was working hard on cost aspects of coal and that coal transport by road was not sustainable.
According to Dames, the cost of getting coal to power stations makes up 17% of the total cost of coal while as much as 28% of Eskom’s coal is currently transported by road. Transporting coal by road doubles the price per ton, putting Eskom’s primary costs under much pressure. This was one of the main reasons for the 31.3% tariff increase, says Dames.
Another problem recently pointed out by Graham Gaskell, chief operating officer for Reinhardt Transport, at the Coaltrans South Africa Conference is the fact that 55% of all coal moved in South Africa is transported by truck. This, however, was at risk because of the increasing number of truck accidents and fatalities that were much higher than international levels.
Gaskell attributed this to credit pressures imposed upon logistics operators by banks and financiers, the technical inadequacies of the country’s truck fleets, poorly trained drivers and a remuneration system that caused drivers to drive for too long periods without rest.
He told the conference that the high incidence of truck accidents, the deterioration of South Africa’s road infrastructure and misdirected over-regulation threatened the “long-term sustainability and global competitiveness of the South African road logistics value chain, and consequently South African industry”.
In February 2008, at the height of Eskom’s rolling power blackouts, Maroga told Parliament that Eskom estimated it would require an additional 900 trucks to transport coal to meet stockpile requirements, and that to facilitate this would require that substantial repairs be done to roads, particularly in Mpumalanga. Failing to do this, he said, could delay vital stockpiling of coal, leading to power interruptions.
Much concern has previously been raised over the over-usage of and damage to South Africa’s roads. Eskom, too, has expressed concern over damage to roads and the high rate of truck accidents and made a commitment to shift coal transport volumes from trucks to rail.
The opposite was happening and Eskom shelved, without giving reasons, its plans to build a new 69-kilometre railway line from coal sources at Ermelo to its Majuba station.
According to TFR, Eskom was supposed to pay for construction of the new ‘heavy haul’ railway line. In addition, road supply links were vital to fill rail network gaps in many areas.
In August 2008, Eskom stopped all coal road transportation for a 24-hour period to improve road safety after suffering 55 accidents that killed 16 people during the preceding month.
Experts such as Gaskell believe one solution may be found in the introduction of performance-based standards widely used in countries with low truck fatality rates. These reduced damage to roads, increased payloads and improved safety.
Other transport issues that have recently affected Eskom included the truck drivers’ strike and problems between Eskom and a large number of small truck operators over contracts.
Gavin Kelly, technical and operations manager for the Road Freight Association, points out that there has been substantial growth in road-freight transport over the past two years and that some 85% of the freight is transported by road for lack of a decent rail system.
Stef Terblanche
