In the ANC's crosshairs: New road map for coal producers
The ANC has listed a number of dramatic interventions to deal with Eskom’s coal supply problems as the power utility battles to secure long-term access to its primary feedstock.
The suggestions include the introduction of coal export certificates managed by the National Energy Regulator of South Africa to ensure that Eskom’s demands are met before coal is exported, as well as the allocation of Transnet export rail or port terminal capacity to coal exporters only once local power needs have been met at “cost plus a reasonable return”.
The proposals are contained in a full-length draft of the party’s policy discussion document on state intervention in the minerals sector, posted on the ANC’s website.
They include the concessioning of select power plants to consortiums of coal producers and electricity consumers under certain conditions, such as:
- The expansion of capacity for supply to Eskom;
- The supply of the expanded capacity to Eskom at cost plus 12%;
- An annual concession fee to Eskom to compensate it for the revenue forgone, plus an additional premium;
- The employment of all Eskom power plant staff with a five-year moratorium on retrenchment and the servicing of pension, health and other commitments; and
- The direct supply of third parties with Eskom’s agreement on non-discriminatory, cost-plus terms.
The recommendations are a response to the critical issue of South Africa’s reliance on coal for electricity generation and the host of problems this reliance has begun to exhibit, according to the report.
Eskom has for some time highlighted its concerns about securing long-term coal contracts needed beyond 2018 and the roughly R100-billion new investment required in coal mining to ensure its future coal needs are met.
The utility has also come up against competition from export markets. Demand from countries such as India and China has resulted in supplies traditionally reserved for Eskom being sold internationally at more lucrative prices.
Rising input costs could have an impact on Eskom’s tariffs at a time when the utility has been asked by President Jacob Zuma to find ways to curb its tariff increases.
The document says problems range from Eskom’s inability to secure sufficient coal, arising “from a conflict between the mining industry’s need to exploit lucrative international markets”, to “concerns over the quality and price of coal that is supplied to the energy utility”.
Such practices, it notes, “have prompted Eskom to seek the introduction of mechanisms such as price controls, quotas on exports and restrictions on the exports of the types of coal used by Eskom”.
Eskom spokesperson Hilary Joffe said the company was still studying the document, but it welcomed the debate and would give input on the matter where appropriate.
There have been calls from “some quarters” to get the department of minerals to declare coal a strategic mineral, which would allow it to apply certain conditions on the production, storage and use of coal, the document says.
Although these calls have yet to be formally considered, the issues need to be addressed, given that the demand for seaborne coal is “at an all-time high, a trend that is set to continue for years, if not decades”. It is not “difficult to appreciate the continued tension between the local mining industry supplying the lucrative export market over Eskom”.
The state would, however, have to strike a balance between increased regulation “which might create its own problems” and allowing exports of coal that bring in foreign currency to South Africa, it notes.
But the document emphasises the need ultimately to wean the country off its reliance on electricity from coal, pointing to power generated from potential shale gas resources in the Karoo. Early “guesstimates”, it says, indicate that there could be enough gas to replace the build of coal-fired plants with gas through closed-cycle gas turbines.
The state, through the ministries of mineral resources, energy, public enterprises, environmental affairs and trade and industry, should assess the viability of this option.
The document stresses that the shale gas areas should be reserved for exploration and evaluation by the state to deliver the optimal strategy for their exploitation. It notes, however, that large areas have “already been allocated to Shell and a few other companies”.
Another option is tapping into the natural-gas reserves of countries such as Mozambique, Angola and Tanzania, but it needs to take into account questions of regional integration.
The document also recommends the further exploration of the viability of imported hydropower from the Southern African Development Community.