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May 20, 2008

Eskom says coal exports threaten security of supply

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Eskom CE Jacob Maroga speaks about coal prices (20-05-2008)
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© Reuse this While soaring coal prices were a key driver behind Eskom’s latest and much-debated application to the energy regulator for significant electricity price increases, CE Jacob Maroga said on Tuesday that it “won’t be useful to force” issues on the coal industry.

However, he conceded that having to compete with the export market for South African coal was a threat to Eskom’s security of supply for coal, which it uses to produce over 90% of its power.

Its biggest supplier of the fuel, Exxaro Resources, which said in January that it might start exporting lower-grade coal to India by the end of the year, had not yet started this, spokesperson Trevor Arran said.

In a media briefing at the State-owned entity’s Johannesburg offices, Maroga said that: “Eskom quality coal was coming under pressure as something that is attractive to overseas consumers”.

He acknowledged that there was a debate between industry and government around availability, security of supply, and the price of coal.

“There is a view that, given coal is a strategic resource for energy, we have to do things that maintain the security of supply,” stated Maroga. “It may be a combination of taking resources, pricing mechanisms, but how that will unfold is still in the early stages.”

Government had also said on Tuesday that it was interrogating issues around coal in South Africa.

Department of Minerals and Energy spokesperson Bheki Khumalo said that the Minister had commissioned a study to draft a "coal master plan", which would interrogate the "best way of preserving our national coal resources".

He was quoted in other publications as having said that an option was to limit the export of coal, but denied having said this when Mining Weekly Online approached him for comment. "You can't put the cart before the horse," he said.

Arran also said that government could not simply “close off the export taps”, as miners had contractual obligations to fulfil, including with rail operators, port operators, and with overseas customers.

RESPONSIBLE

Maroga hinted towards a more amicable approach.

“I also think that, within the mining industry there is a recognition that they have to do things that are responsible, and not to threaten security of supply,” he said.

“And I’m confident that discussions that benefit everybody will emerge. I don’t think that it will be useful for things to be forced on parties.”

Arran said that Exxaro was playing its part.

“We are not irresponsible in all of this,” he said in a telephone interview.

He pointed out that the JSE-listed miner had agreed to supply Eskom with 13,5-million tons out of the additional 30-million the parastatal had contracted thus far in its bid to secure an extra 45-million tons of the fuel.

COAL SPEND

Meanwhile, Maroga noted that Eskom had not cut its spending on coal to protect its profits last year, as the National Energy Regulator of South Africa argued in its report released on Monday.

In fact, he said that the power utility had “consistently spent above its budgeted amounts” in the 2006/7 and 2007/8 financial years, and was on track to spend a total of nearly R13-billion above its budget on procuring coal by the end of the current financial year.

One of the contributing factors to Eskom’s ballooning spend on coal was the fact that it had to increasingly look to the spot markets for supply, as it ran its stations harder.

Maroga said that it currently sourced about one-quarter of the fuel on short-term contracts, which led to significantly higher prices.

Arran said that about one-half of the coal that Exxaro sold to Eskom was based on cost-plus contracts.

Ruling African National Congress secretary general Gwede Mantashe on Friday said that more of Eskom’s coal should come from such contracts.


Edited by: Mariaan Webb
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