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Nov 22, 2007

Eskom to study how surging coal price can be contained

Eskom FD Bongani Nqwababa tells Mining Weekly Online about the surge in local coal prices
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Africa’s biggest power firm Eskom will next year launch a comprehensive study into to how it can contain the surging price of coal that its used to generate nearly 90% of the country’s power, FD Bongani Nqwababa said on Thursday.

Addressing a public hearing into Eskom’s application for a tariff increase, in Pretoria, he said that coal prices had increased by 30% in the past year alone.

Eskom has applied to the National Energy Regulator of South Africa for an 18% tariff increase next year.

The State-owned utility was running its power stations harder than ever to try and keep up with the country’s growing electricity demand, which meant that it had to buy more coal on short-term contracts, Nqwababa said.

Eskom paid an average of R80/t to R90/t for the 80% of its coal that it bought through long-term contracts.

However, the utility was increasingly having to source coal from short-term contracts, currently accounting for one-fifth of its usage, and this coal cost as much as R160/t, Nqwababa told Engineering News Online in an interview.

Also, long-term suppliers were increasingly attracted to the more lucrative export markets, creating “huge security of supply issues” for Eskom, he stated.

Nqwababa added that it was likely that this would continue “for a while”. “There are supply constraints, and demand is growing significantly.”

It was expected that Eskom’s coal supplies would come under increasing pressure, as India could progressively source more lower-grade coal for its new power stations from South African producers.

Keaton Energy, which is headed by former Nedbank Capital financier Paul Miller, said earlier this year the large number of coal-fired power stations that India was building on its western seaboard burned the same lower-grade coal as Eskom’s power stations, and that a major local producer was, apparently, considering exporting this fuel to India.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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