DMR calls for controls over coal price increases

[miningmx.com] – LIMITING coal price inflation by balancing exports of the fuel against domestic needs was a priority of the South African government, said deputy director-general of the Department of Mineral Resources (DMR), Mosa Mabuza.

In a keynote speech at the IHS South African Coal Export conference in Cape Town, Mabuza also said the coal sector had failed to build on its early momentum in transforming the sector, and that a task-team would re-prioritise formulation of a coal policy this year.

Mabuza said the government had a responsibility to manage the competition between exports and domestic coal requirements. “We will do this as we seek to ensure sufficient supply to both local and export markets,” he said.

The government would also evaluate the current pricing model and structure for coal dedicated towards national energy generation. “We must satisfy ourselves that such models do not result in unnecessary inflation of electricity costs,” he added.

Mabuza’s latter comments chime with the actions of Eskom CEO, Brian Molefe, who refused to agree to an increase in the price of coal from Glencore’s Optimum Coal Mine. Molefe also allowed a coal supply agreement with Exxaro Resources to lapse after failing to reach a new supply agreement.

Last year, Molefe told Miningmx that he was disenchanted with cost plus coal supply to Eskom in which the power utility bears the capital cost of building a mine in return for its exclusive supply at a certain margin above operating costs.

Speaking to Miningmx in June, Molefe said: “We pay for the capital expenditure of the mine and even the operating expenditure some times, and then still pay a tariff (for the coal). We have been doing that for years and it has cost us and arm, and a leg and a little bit more”.

“If I were to be there [at Eskom] beyond the middle of July, I would say we must have a tender for the supply of coal of a certain grade to an Eskom power station,” he said. Molefe, then interim CEO of Eskom, was appointed its full-time CEO in September.

“It might not be from the mine next door, but from whoever can supply coal of a certain grade to Eskom,” said Molefe at the time.

“If the mine next door is five cents more expensive and the mine 200km away can deliver it five cents cheaper, and it is the right grade, we must buy it from there. It’s a free market,” he said.

Said Mabuza: “I cannot emphasise enough the importance of cost competitive energy security to our socio-economic development objectives, which underpin our sustainable economic growth and access to energy by ordinary South Africans”.

He hailed the South African coal mining sector for its pioneering efforts in transforming the sector, but he said it had since fallen behind.

He cited the development of ‘Quattro allocation’ which sets aside about four million tonnes/year of coal handling export allocation at Richards Bay Coal Terminal (RBCT) which is dominated by Anglo American, Glencore, and South32.

Quattro allocation had “remained the same” or had been “subsequently eroded over time. This situation is untenable and must be addressed appropriately,” said Mabuza.

Efforts to establish a coal policy – interrupted last year – would recommence. “Given the importance of coal to our nation, we have reprioritised the development of the coal policy it is intended for finalisation in the first half of the current calendar year,” he said.

Amendments to the Mineral & Petroleum Resource Development Act would also be discussed in parliament by the first half of this year, he added.

It is thought that the bill will be set before the National Council of Provinces, the upper house of parliament, which – it is argued – did not properly vet the proposed legislation. The bill was subsequently sent back to parliament by President Jacob Zuma.

The amendments identify coal as a strategic resource but attempts to place a quota on exports (in favour of domestic supply) and to set developmental pricing on domestic supply are not part of the amendments – and would be resisted by the industry were they to be reintroduced.