[miningmx.com] – PUBLIC enterprises minister, Malusi Gigaba, said he would support the notion of declaring South Africa’s coal resources a strategic asset at the African National Congress’ (ANC’s) elective conference in Mangaung.
However, Gigaba added that arriving at a national pact on coal prices, as suggested in parliament earlier this month by Eskom CEO, Brian Dames, would be the preferable option for containing coal price inflation.
“I will certainly discuss coal at the national conference and stick to the view that coal is to become a strategic asset,’ Gigaba said in an interview with Finweek and Miningmx.
“The coal price needs to be contained as it has a ripple effect on the cost of electricity. The national conference will then deliberate,’ he said.
Manguang is the ANC’s national conference where it elects leadership including its president. Policy issues are also discussed although Enoch Godongwana, head of the ANC’s economic transformation committee, told Miningmx in September that any policy decisions would be broad in nature.
Declaring coal a national asset would be a precursor to imposing levies on exports and provide a greater incentive to supplying coal to Eskom.
Coal producers have argued, though, that export levies would constrain their ability to invest in new coal mines as well as undermine efforts to improve infrastructure such as the Richards Bay coal export line.
Said Gigaba: “It would be much better to arrive at a national pact than impose a decision from above. A national pact from a reputational point of view is better and more workable’.
Dames told the National Council of Provinces’ select committee on labour and public enterprises, that if miners agreed to contain coal price inflation to 10% or less, Eskom would be able to lower its tariff, currently the subject of an application lodged with the National Energy Regulator of South Africa (Nersa), a body appointed by the South African government.
Eskom’s application is for a 16% increase in the tariff every year for five years from 2013. The application, known as the “Multi-Year Price Determination’ (MYPD3), is partly based on coal costs not exceeding 10%. Were coal prices to increase by more than this rate during the period, Eskom would be forced to request a further tariff application.
Conversely, there is a provision for a “re-opener’ allowing Eskom to request a lowering in the application, said Hilary Joffe, a spokesperson for Eskom. This would mean negotiations on the national pact could begin without holding up implementation of the MYPD3, assuming Nersa approved it.
“A lot of work will have to be done to make sure that coal costs get to 10%,’ Dames was quoted by Business Day earlier this month to have said.
He said it was not possible for Eskom to apply for inflation-linked tariff increases when coal prices had risen above inflation,’ said Business Day which was the first to quote Dames on the proposed “national pact’.
Asked if the option of either a national pact on price inflation or export levies effectively put coal mining firms between a rock and a hard place, Gigaba said that the country had little option. He also said it was the coal firms’ duty to reach a compromise with the South African government.
“Eskom has spent billions of rands supporting the coal industry. This is something the industry can now do,’ he said.
“It’s not an everlasting issue as we are in a certain phase of power build which has different challenges,’ Gigaba said.
“Mining companies may feel constricted but so is the country. The proposed tariff increases are unfair but they are also necessary. We are feeling the pain of under investment in the past,’ he said.
