[miningmx.com] — HAS Eskom lost its cotton-pickin mind?
One of its suggested remedies for the coal supply crisis that will be endangering its power-producing ability in the years ahead is to impose an export licensing system, or quota, on coal exporters.
Given the controversy generated by the Kumba Iron Ore and Lonmin prospecting permit awards, I would have thought the prospect of implementing another layer of red tape via a licence system – as hinted at by Eskom business executive Dan Marokane at this week’s McCloskey coal conference – would have officials in the country’s department of minerals and energy (DMR) requiring therapy.
The problems the DMR has had with issuing licences to the country’s miners in terms of the Minerals and Petroleum Resources Development Act underpin how principles and execution part ways.
Few would disagree that empowerment in South Africa’s mining sector required legislation, mainly because there was little evidence the mining companies were going to do it themselves, at least not with any urgency – no way.
But you wouldn’t get much support for the botched way in which the legislation has been applied and even written, as evidenced by the DMR’s acknowledgement last year that it is ambiguous and requires amendment.
Similarly, the principle of how certain grades of coal are now blended and marketed to India, which has the technology to process those grades, needs a principled response from government.
Certainly South Africa cannot permit predominantly foreign-owned mining firms, such as Xstrata and BHP Billiton, to make hay on international coal markets while the country in which the resource was mined is undersupplied.
Moreover, Eskom itself amply demonstrates in a recent presentation that nearly all of the world’s coal-producing districts have imposed a level of government-backed regulation on coal exports.
India, for instance, has positioned new power stations on its peninsula which effectively secure its major inland coal resources for domestic use. For its thermal coal, Indonesia has instituted a “domestic first” policy ensuring its power stations are supplied with coal.
But installing a licensing system is potentially a recipe for disaster, partly because it’s hellishly difficult to police. It also has to be legislated. Not since the repeal of the Coal Act in 1986 has South Africa had a system to regulate the amount and price of coal exported through the Richards Bay Coal Terminal. However, there is talk that by declaring a mineral strategic, government can append special conditions to its mining. But that may all be hooey.
Says Leon Bekker, who recently left Anglo Platinum – where he headed the legal department – to practice mining law at the Johannesburg bar: “The department thinks it can wave a magic wand and just declare a mineral as being “strategic’. It tried that with platinum as well. There is no power in the legislation to do that.’
In the end, the DMR had to write the Precious Metals Act to regulate the sale and export of platinum and gold, which Bekker says was “under the pretence’ that regulation was required for the possession of precious metals and to facilitate “access” to them.
Underpinning these concerns that fresh legislation and the ability to properly implement it will further distance South Africa as an investment choice, is the somewhat perplexed view of industry players to Eskom’s claims regarding the availability of low grade coal for its power stations.
In the main, coal exports have fallen while Eskom coal burn has increased over the last five years. Contracts also enshrine the supply of coal, industry players say.
Is then Eskom’s concern about getting quality a misunderstood response to the inability of empowerment companies, recently introduced to the coal industry, to supply the right quality of coal to Eskom?
Speaking to the Financial Mail, Keaton Energy CEO Paul Miller says the inevitable decline of coal grades is Eskom’s biggest enemy.
South Africa no longer mines the same high quality of coal. After washing, less of each grade of coal is available: less high calorific coal is available to offshore buyers – who have nevertheless developed the boiler technology to process it anyway – and less middlings coal is available. So what is Eskom trying to protect?
Nonetheless, a system is required to lasso these issues. Even though Eskom currently has 40 days’ inventory of coal for its power stations, it still needs to secure future supply.
That’s the view of Xavier Prevost, an independent coal analyst. He believes Eskom needs to offer a price for coal that is competitive enough for exporters to see that supplying coal domestically makes more sense that paying the cost of freighting it to the port, which is becoming increasingly difficult.
There’s one small mercy in all of this. And that’s that Eskom CEO Brian Dames has again displayed the strategic wherewithal to anticipate long-term problems.
No one would disagree that farsightedness is a welcome attribute among Eskom top brass, given the mess of South Africa’s last power crisis in 2008.
