Mining Group on Excessive Transport Costs: briefing

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
7 March 2001
MINING GROUP ON EXCESSIVE TRANSPORT COSTS: BRIEFING

Documents handed out:
None

Chairperson: Mr J P Cronin

SUMMARY 
The committee was briefed about the Billion Mining Group which has been performing at a loss for the past three years, mainly due to transport costs. Transporting the material from the smelter in Vereeniging to Port Elizabeth costs the company 27% of its budget expenditure. Billiton asked that the Committee engage Spoortnet on these issues in their upcoming meeting with them the following week.    

The Chairperson reminded the committee that such intervention were in line with the President’s view that business, with assistance from government should devise means to allow for such beneficiation of companies in developing countries such as South Africa.

The Committee will visit Spoornet and the site of the recent train tragedy at Pretoria station as well as stations around Cape Town where security personnel could be withdrawn.

MINUTES
Mr Fourie, the representative from the Billiton Mining Group, gave a background on the Group. He said the company, founded in 1937, deals with aluminium, coal, chrome, copper, manganese and titanium. The company he said prides itself for being environmentally responsible and they have global operations with assets in Australia and Tasmania.

Of the mine output, they export 90% of their products to the international community via the Durban or Port Elizabeth harbours. They have a permanent staff of 460 to 550. Their core business is the production of silicon manganese and manganese ore.

As part of major restructuring in the company they had closed down the South African refinery plant and their Japanese partners now do the refining. When it is brought back to the country it has to be railed from the coast to the plant in Vereeniging. Transporting the products by rail has become an extremely costly exercise. However they are not contemplating closing down.
For the last three years the company has been making a loss. The problem the company has is mainly its geographical positioning. In comparing rail and road, road transportation was cheaper at R85, 57 per kilometre compared to R93, 64 km by rail. Mr Fourie agreed that this was an option available to them however they would rather use rail because of the type of product they are producing. In addition they do not have the necessary infrastructure in place to transport by road.
 
Mr Fourie an efficiency study has been conducted which showed that the transport costs can be reduced if  they use the Saldanha route instead of the Port Elizabeth route. However if they were to change routes that would be detrimental for the employees of Spoornet who work on the route to Port Elizabeth. Hence they believe it was also in the best interest of Spoornet that they come to some agreement that would suit both parties. They are aware that there are major restructuring programs at Spoornet in terms of privatising some of its services to concentrate on their core business. They hope that Billiton and Spoornet can reach an amicable agreement on the costs for transporting their material by rail.

Discussion
Ms F Mbengo (ANC) asked what happened to the 450 staff members who lost their positions as a result of the closure of one of the company’s plants. Secondly, if the Saldanha route is 25% less expensive, why does the company not use it instead?

Mr Fourie replied that there was broad consultation with all the relevant labour unions. He said some of the staff took voluntary packages and other were redeployed to other positions within the company. On the second question, he said Iscor owned the rail and hence it would be difficult for them to use that route

Mr T Abrahams (UDM) asked if there were any comparative studies of companies faced with similar location problems.  In comparing between rail and road, how much was moved in terms of volumes by the company on both rail and road to the ports?

Mr Fourie replied that they had compared with fellow alloy companies in Europe - most of them where closer to the harbours. In Brazil the company owned the rail lines. The company has not concentrated much on using road due to the type of material they are producing and not having infrastructure for road transport. 

The Chairperson pointed out that it was unlikely that Iscor could own a rail line.

Mr Fourie said Iscor does not literally own the rail route to Saldana but they moved huge volumes of steel on that route which made it difficult for other companies to use it. 

Mr S Simmons (NNP) commented that Mr Fourie meant that Iscor would lose money if a new company started using this line.

Mr S B Farrow (DA) said if there was the option of the Saldanha route, it should be taken. He did not see any reason for helping such a company with funds. In his view geography is geography and a company has to deal with this factor.

The Chairperson said they can't hold a view such as the one expressed by Mr Pillay that geography is geography. President Thabo Mbeki had remarked at the World Economic Forum on beneficiation of both third world countries and developed countries from globalisation. He said business with assistance from government should devise means to allow for such beneficiation.

The Chairperson asked Mr Fourie at which level they would like the transport cost to be for the company.

Mr Fourie replied that the company could go the route of closing down the company especially considering that their sister company in Australia is performing very successfully.
They would like to see transport costs brought down to 3,6%.

Mr Nieman asked the meeting who else uses the Saldanha rail route? The committee and Mr Fourie were not sure.

Mr Slabbert (IFP) asked why companies needed to have contracts with Spoornet for using the railway instead of merely having to pay a tariff.  

In conclusion, Mr J P Cronin said the committee would bring this to the attention of Spoornet in their upcoming meeting with them in Pretoria.