Eskom may divert Medupi coal to Hendrina

[miningmx.com] – ESKOM may reduce its take-or-pay provision on coal from Exxaro Resources’ Grootegeluk Medupi Expansion Project (GMEP) by diverting the fuel to Hendrina, the 1,900MW power station currently supplied by Optimum Mine.

Eskom has made a provision for R8bn in penalties, potentially payable to Exxaro, for coal from GMEP that it cannot burn at Medupi owing to delays in the commissioning of its units. Exxaro had been paid just over R3bn in take-or-pay penalties by Eskom.

So far, only one of Medupi’s units – commercially producing just over 700MW – has been commissioned. Medupi will have installed capacity of over about 4,700MW.

Brian Molefe, CEO of Eskom, said the utility may accept production from GMEP and transfer it to Hendrina. This would reduce its liability on take-or-pay penalties and potentially head off a coal supply problem at Hendrina.

Hendrina is currently being supplied coal from Optimum Coal on an interim basis whilst the mine undergoes business rescue.

The mine was placed in business rescue after a framework agreement that Optimum supply coal to Hendrina for R150/t was dissolved. Eskom then slapped Optimum with an additional R2.2bn penalty for producing below specification coal.

Optimum Coal Holdings, in which Glencore is the controlling shareholder, wants the coal contract adjusted to R300/t because the mine is aging. It has already shut down about five million tonnes/year in export production from the mine.

“I think perhaps we could take that coal and then not incur further take-or-pay penalties, and then dump it for a while at some siding until we can transport it to Hendrina,” said Molefe in an interview with Miningmx.

Medupi and GMEP are about 6.5km apart in South Africa’s Limpopo province whilst Hendrina is in Mpumalanga province, some 472km from GMEP, according to Google Maps.

Molefe added that Eskom would not relent in insisting on getting coal from Optimum for R150/t and that the penalty for producing coal it considered sub-quality must be paid. “We will continue to enforce the penalty and we want our coal for R150/t. That is what the coal was contracted for,” he said.

Molefe said that another operator would be appointed to mine coal from Optimum were the operation shut in terms of business rescue. “The mineral rights belong the country; it is our ground,” said Molefe.