Quotas may be fatal misstep for SA coal

[miningmx.com] – IF ever there were two sides talking past each other,
it’s the public and enterprises ministry and South Africa’s coal industry, represented
by Minister Malusi Gigaba and Norman Mbazima respectively.

Gigaba’s suggestion at Eskom’s full-year results presentation in Cape Town on
Thursday was that the South African government was giving thought to declaring
coal a strategic asset. Doing so would allow government to impose quotas on coal
exports and, therefore, help Eskom secure all the coal it needs for the country’s
future power generation needs.

Speaking at an investors and analysts presentation in London on the very same day,
however, Mbazima declared there was enough coal in South Africa’s coalfields for
both Eskom and exporters. However, he was emphatic that government had to
incentivise new mine build.

Well, installing export quotas isn’t going to incentivise the private sector because
these are the actions of a command economy, and investors prefer free market
policies.

There’s another question, too. If an export quota on coal is the way to secure energy
supply, then just what is the provenance of the state-owned mining company, the
so-called African Exploration & Mining Finance Corporation (AEMFC)?

The creation of AEMFC was to compete with the private sector for exploration and
mining assets it deemed strategic to the economy; coal, mainly. Just how many bites
does government want at this?

There are better, more innovative ways to secure energy. A couple of months ago,
Miningmx reported on Indian group Tata Power’s interest in establishing a
joint venture with government on stranded coal assets.

The internationally traded seaborne thermal coal market has changed radically over
the last five years. Some 80% of South African exports used to go to Europe. Now
our coal exports predominantly go to Asia. Buying it is also more varied as modern
day furnaces are capable of burning more grades of coal.

Anglo Thermal Coal is consequently transforming itself into a “strategic marketer’ of
coal, making itself more flexible and opportunistic to the new market environment.
By contrast, public enterprises is responding in a rigid, inflexible way.

Unfortunately, market forces can’t be restrained by state diktat. Banning exports in
coal, or indeed in the chrome sector, will only create a vacuum to be replaced by
other companies in other countries.