[miningmx.com] – ACTING Eskom CEO Brian Molefe’s astonishing claim that there is “no coal supply crisis at Eskom’ cannot go unchallenged because it runs completely counter to Eskom’s previous dire warnings over its future coal supplies.
Molefe told a media briefing at Parliament last week that: “There is no crisis with the supply of coal to Eskom. To say we’re going to have a crisis is a bit rich. I know there are a number of companies who are eager to negotiate contracts with Eskom.”
This is not the first time Molefe has appeared out of touch with reality in his new position. On April 22, he told a Parliamentary portfolio committee that Eskom was not in “a very bad financial position.’
That, of course, was followed on May 8 by news of Eskom’s application for a “fast track” decision from Nersa (National Energy Regulator of SA) for a staggering 25.3% rise in electricity tariffs for 2015/16.
But let’s stick to Eskom’s coal supply situation. Maybe Molefe should start talking to his own senior staff? Eskom is the originator of the “coal supply cliff” because of which fear the utility has been lobbying the South African government furiously to have coal declared a “strategic mineral’.
Eskom management is petrified the South African mining companies are going to sell coal that should be burnt by Eskom to competing power stations being built in India which are prepared to pay more for it.
On page 137 of Eskom’s 2014 integrated annual report it states that Eskom has contracted for 80% of the coal it needs over the next five years.
The report adds: “Despite claims that the country has ample coal for both export and to supply Eskom, the company believes that given the importance of the resource to the country, state intervention is required to ensure that South Africa has enough coal to meet its growing energy needs.”
That 20% shortfall in coal contracts is the start of the “coal cliff” and it gets worse as you track further out to – well – pick a number.
According to the SA Coal Road Map published in 2013 “Eskom reports that it still needs to secure, contract and build the mines to provide about 2 billion tonnes (bt) of the estimated 4bt it requires to supply its current power stations to the end of their planned operating lives … most of this coal is required before 2040 and shortfalls at some power stations are anticipated as early as 2015.”
The Road Map was a study on the future of the coal sector compiled with input from Eskom itself, the coal mining industry and Transnet.
Molefe also said last week that: “It’s not as if South Africa is going to run out of coal” and, for once, he’s actually correct. South Africa has enough coal to supply Eskom; boost exports to more than 100 million tonnes/year (mtpy) and supply a new Sasol synfuels plant in the Waterberg should it ever be built.
But Eskom itself just might run out of coal because Molefe is glibly glossing over the realities involved in digging that coal out of the ground, washing (processing) it, and then supplying it to a power station.
We are talking about the construction of up to ten new collieries each producing 10mtpy to 12mtpy of coal. These are typically coal mines like that cost north of R10bn each and take five to seven years to build.
Junior mining companies are simply not going to find that kind of financial support under current depressed market conditions.
Previously – in the 1980’s – Eskom funded the construction of a number of those collieries so as to get low coal prices over their economic lives because they were operated on a ‘cost plus’ basis as ‘tied collieries.’ But Eskom does not have the funds to do that again.
That means investment by the private sector which is going to want a decent return on its money. That’s assuming the mining group is prepared to take the risk of investing in South Africa in the first place given the on-going political shenanigans in general and the bitter battle over the interpretation of empowerment in the Mining Charter in particular.
Which brings me to Molefe’s observation about those companies “eager to negotiate contracts with Eskom.”
I would love him to name them so we can see who is actually offering to do business with Eskom and what volumes of coal are involved.
Anglo American does not want to do further business with Eskom. It is busy setting up a vehicle into which it will put its Eskom-tied collieries plus Anglo Nyosi coal – which owns the New Largo colliery which is supposed to supply Eskom’s Kusile power station – and will then sell its stake down to below 50% to meet Eskom’s new BEE requirements. There’s also speculation is Anglo just might sell out completely.
BHP Billiton does not want to do further business with Eskom. The world’s biggest resource group has just washed its hands of South Africa completely unbundling its former operations here into a new company, South32.
Let me try to make the implications of all this relevant to the man in the street. I think Molefe is wrong and I believe Eskom has plenty more shocks in store for the citizens of this country in terms of its future inability to meet power demand.
I have acted accordingly. I have owned a generator since 2008 but, in October/November last year, I had a gas-fired hot water geyser installed at my house as well as a 2,500 litre back up water tank.
I still get a “warm, fuzzy feeling’ every time I see my new installations and that’s not just because I am doing my bit to reduce power consumption as Eskom keeps exorting us to do. I view it as insurance against what is inevitably coming down the track.
