State-owned electricity group Eskom has handed over a draft framework agreement to its four main coal suppliers outlining the details of a possible compact aimed as containing the future cost of coal.
Eskom CEO Brian Dames told the National Energy Regulator of South Africa (Nersa) panel on Friday that the documents were currently being considered by executives at Anglo American, BHP Billiton, Exxaro and Xstrata/Glencore.
He said a pact with coal miners would be crucial in ensuring that the group’s yearly coal inflation remained capped at 10% over the third multiyear price determination period (MYPD3), which was proposed to run from 2013 to 2018.
The utility has applied to Nersa for R328-billion to cover its expected coal costs over the MYPD3 period, making it the largest single component in the application, which seeks an overall allowable revenue of nearly R1.1-trillion over the period.
Speaking at the Gauteng Nersa hearings, Dames said he is awaiting feedback from the miners, but that he had left a recent meeting with the CEOs of the group’s four main suppliers “with a great sense of support . . . that they would work with us around the containment of coal costs”.
Nevertheless, Eskom is still calling for coal to be classified as a strategic resource so that domestic electricity production received preference ahead of foreign sales.
This argument, which was repeated by Mineral Resources Minister Susan Shabangu in Cape Town earlier in the week, is highly unpopular with miners, who have cautioned that it could result in unintended consequences.
However, both Shabangu and Eskom continue to emphasise a willingness to consult and engage to ensure an outcome that balances supply security and coal export earnings.
Coal exports generated more than R87.8-billion in export earnings in 2011, making the coal subsector the highest mining-related revenue earner that year.
Chamber of Mines deputy head of technoeconomics Dick Kruger told Nersa that the industry was willing to negotiate with Eskom on future prices. But he warned that the current captive colliers were mature and that major investments would be required to meet Eskom’s future capacity.
Kruger said that, on average, investments of R650-million would be required for every additional million tons of coal produced and that projects and operations were currently subject to high input-cost inflation, driven in part by surging power costs.
Miners have even warned of a serious supply crunch from as early as 2015 unless efforts were made to shore up the investment required to meet Eskom’s demand, while meeting the returns objectives of the mine owners.
Edited by: Creamer Media Reporter