The head of State-owned power utility Eskom Brian Dames met with the leaders of the group’s four main coal suppliers at the weekend to initiate talks on how the miners could assist it in keeping its coal costs under control, so as to limit future electricity price increases.

Coal is the largest single cost item in Eskom’s third multiyear price determination (MYPD3) application, which is currently being considered by the National Energy Regulator of South Africa (Nersa). It makes up R328-billion of a larger revenue-requirement application of R1.1-trillion for the five-year period from 2013 to 2018.

Addressing the Nersa hearings in Midrand on Wednesday, Dames said that while the R355-billion being sought for primary energy expenses assumes yearly increases of 8.6% over the period, the coal component was expected to rise by 10% a year.

Therefore, Dames again called for a “pact” with coal miners to ensure that prices did not rise ahead of the rate assumed in the MYPD3, and were kept well below the average coal inflation rate of 17% recorded over the past three years.

Dames said that, while 70% of its coal was still being purchased through long-term contracts, there had been a significant reduction in volumes flowing from its cost-plus mines, which had led to more and more expensive coal being transported over long distances.

Eskom had previously appealed for coal to be declared a strategic resource in a bid to ensure that the domestic electricity industry received supply security ahead of coal customers abroad.

But the meeting with coal suppliers might indicate a change in tactic, particularly as it convened only days after Eskom reached a confidential agreement with Glencore. Under the deal, Eskom withdrew its Competition Tribunal intervention relating to Glencore’s $33-billion merger with Xstrata in favour of a negotiation process designed at establishing new ground rules for future relations.

Eskom was likely to seek an arrangement that ensures security of coal supply and avoids a migration in prices towards an export-parity level.