NPC revives coal export permit debate

[] – A MEMBER of the National Planning Commission (NPC)
has revived the notion of coal export permits for South Africa’s coal producers if they
fail to negotiate supply settlements with electricity utility, Eskom.

Eskom has expressed concern that the security of future coal supply is at risk if coal
producers continue to exploit higher margin business in the export market. Low
quality coal normally dedicated to Eskom is now being bought for better prices by
Asian end-users, especially Indian power generation companies.

Eskom has forecast that by 2018, a supply deficit of roughly 40 million tonnes (Mt)
could develop, and that the coal mining industry should step up with new projects.

Speaking at the McCloskey Coal Conference, Professor Anton Eberhard, who is also
an academic at the University of Cape Town, said coal export permits should be
viewed as a “temporary measure”. He added, however, that if an agreement could
not be found, government should start “using the stick”.

“I would urge all parties to come together to find a fair deal. We need specific
planning of specific resources. If they don’t [negotiate a settlement], government
may have to implement export permits,” he said.

Speaking on the sidelines of the conference, Eberhard added that Eskom was holding
individual discussions with coal producers on securing domestic coal supplies.
However, he said he thought Eskom found the process “frustrating”. The government
should step in and take action if necessary, he said.

When export permits for coal producers was first suggested, it was met with derision
by the coal industry. Even the Chamber of Mines of SA, normally restrained with
respect to potentially controversial governmental issues, described the coal export
permit suggestion as “heavy-handed”.

Xavier Prevost, a coal industry analyst, said that South African coal miners ought to
exploit export markets as it made for a more viable business. He added however:
“In my view, it’s best to export the best quality coal and leave the rest to Eskom. A
line needs to be drawn between what should be exported and what shouldn’t.”

Said David Price, a senior director of IHS CERA: “South Africa needs to find a way of
embracing adaptation of market demand. You can’t get away from the fact that
India thinks your ‘low quality coal’ is actually quite high quality.”

Eberhard said the debate over whether Eskom’s domestic coal supply was threatened
was a function of South Africa failure to develop national strategy for its coal
industry. “There has been no co-ordinated export strategy. Investment in rail
capacity has not kept up with Richards Bay Coal Terminal. There has also been no
governance between export and domestic use resulting in Eskom being short of
domestic supply,” he said.