Eskom calls for urgent coal investment

Troye Lund | Thu, 28 Jan 2010 21:01
[miningmx.com] -- ESKOM, the South African electricity utility, warned a government briefing that future electricity supplies hung in the balance unless there was investment in the country's coal industry - a situation it described as "urgent".

In a briefing to parliament’s public enterprises portfolio committee, Eskom’s head of generation, Brian Dames, assured MPs that the power utility currently had sufficient stockpiles of coal, about 36 days.

The stockpiles were being monitored on a daily basis to avoid a repeat of a predicament in 2007 when excessive rainfall and poorly managed stockpiles led to rolling blackouts.

Dames said, however, that the supply of coal, and its cost, was not entirely in Eskom’s hands.

“There’s an urgent need for investment in the coal mining industry, at much higher levels than previous, given the coal demand needs in South Africa," he said.

"South Africa’s coal production has effectively been zero over the last three years,” said Dames who added that demand for electricity in January was already up 9% from the previous year’s January demand.

By 2018 Eskom would need 141 million tonnes of coal a year, 17% more than the 129 million tonnes it required in 2008.

“Together with the tight reserve margin, this has forced Eskom to source from short-term resources in order to fulfil requirements,” said Dames.

Short-term contracts had helped Eskom resolve the 2007 supply difficulties, but these were coming to an end. And while it was assessing new medium-term contracts, securing long-term contracts was the problem.

Against this background, South African coal production hadn’t grown at all over the last three years, said Dames.

Eskom wanted contracts providing it with security over quality, pricing and where the coal supply matched the life of its power stations, said Dames. He also flagged increased costs of producing coal as another risk to electricity supply.

Market woes

Besides having to find ways to transport coal more cheaply to power stations, Dames said Eskom’s coal supply was in jeopardy every time the export price of coal went up.

“We have a unique situation. Coal’s export price is significantly lower than the price Eskom buys it at. So, when export price goes up, there’s a limit to what is available to Eskom,” he said.

However, this was dismissed by Anglo Coal CEO, Norman Mbazima, who also attended the briefing. There was no connection between the coal Anglo Coal sold to Eskom and its exports, he said.

“Eskom can’t use the (grade of) coal we export. There is no interchangeability,” he told the briefing.

Eskom’s concerns around the declining quality of coal were linked to geology problems, but companies such as Anglo Coal would have to do much more drilling to predict future volumes, said Mbazima.

The 36.5 million tonnes of coal Anglo Coal supplied to Eskom annually comes from three mines that have a long-term lifespan of up to 41 years, said Mbazima.

“We can’t use these mines to supply anyone else. It all goes to Eskom,” said Mbazima who added that Anglo Coal was eager to meet Eskom's future power utilities needs.