Eskom’s Dames moots national coal pact

[] – ESKOM CEO, Brian Dames, has asked coal miners to enter into a coal pact that would see them inflation-link coal price increases in return for a lower tariff electricity increase.

Business Day, citing comments made by Dames in parliament, said it was not possible to apply for inflation-linked electricity tariff increases while coal producers continued to ramp up their prices.

Over the past three years, coal prices have risen by an average of 18% annually, and by 17.7% in the first six months of this year, said Business Day.

However, Eskom’s latest tariff application assumed that its cost of coal — which represents about half of its total operational costs — will increase by no more than an average of 10% annually, it said.

“A lot of work will have to be done to make sure that coal costs get to 10%,” Dames was quoted to have said by Business Day.

However, the Chamber of Mines and the SA Coal Road Map, an industry association that seeks to engage with unions and government, said new coal mines producing the quality of coal required by Eskom had to compete for capital.

The implication was that uncompetitive returns would not attract the capital required for these new generation coal mines. Eskom has said in the past that ageging coal mines affects the quality of coal it receives.

Eskom has secured about 80% of its coal requirements for the next five years from South African coal mines.

Eskom has submitted an application to the country’s electricity regulator for a 16% annual increase in tariffs for five years from 2013 to 2018. The Chamber of Mines is currently compiling a response to the application.