/ 2 February 2011

Govt will ensure enough coal for Eskom

Govt Will Ensure Enough Coal For Eskom

Mining Minister Susan Shabangu said on Wednesday the government would act if necessary to ensure sufficient coal supplies for power generation, but backed off declaring coal a strategic resource.

State-owned power utility Eskom has been struggling to secure all the coal it needs to power Africa’s biggest economy, while coal miners have been increasingly focusing on exports due to the promise of higher returns from shipments to Asia.

The shortage has been exacerbated by a pick-up in electricity demand as the overall economy has recovered from a 2009 recession and mines in the world’s top platinum producer have ramped up production.

“The lack of regulation of the coal mining industry resulted in a shift in the power balance away from the national interest to that of the shareholders of the mining companies and Eskom losing some share of its historical market,” Shabangu told a conference in Cape Town.

“We reserve the right to take corrective measures should the situation demand it,” she said.

Eskom says South Africa could face power shortages if domestic coal supplies are not guaranteed, as they have been in other major coal producers such as Indonesia. It also complains about having to pay for domestic coal at international prices.

“Eskom faces serious challenges in securing long-term coal supplies. Unless an alternative is found, Eskom will have to pay prices linked to global markets for South African coal, which is going to impact the consumer,” chief commercial officer Dan Marokane told Reuters.

Heavy investment
Eskom has been investing heavily in new plants after a near collapse of the national grid in early 2008, which forced mines and smelters to shut for days and cost South Africa billions of rands in lost output.

The utility has already been granted three consecutive price hikes of 25% per year to pay for new plants and may apply for two similar additional hikes to pay off the investment, further hitting on an already stretched consumer.

The government has largely left it to the industry to sort out the problem. Eskom’s proposals include quotas on coal exports and varying pricing based on “efficient cost and fair returns”.

Marokane said the model would limit Eskom’s exposure to volatility in international prices and ensure sufficient incentive for miners to invest in new mines for domestic use.

Eskom estimates the industry needs to spend R175-billion over the next 20 years to ensure sufficient supplies for its plants.

Talks on the proposals have so far yielded no results. — Reuters