A deal that will turn black-owned miner Seriti Resources into the largest supplier of coal to Eskom is one step closer now that the Competition Commission has recommended the transaction be approved.
The commission said on Sunday it has recommended that the Competition Tribunal approve the proposed transaction whereby Thabong Coal — a wholly-owned subsidiary of Seriti, which is headed by mining entrepreneur Mike Teke — intends to acquire SA Energy Coal from South32, a diversified miner that was spun out of BHP in 2015 and which is listed in SA and Australia.
The purchase agreement, as announced late last year, is for an upfront payment of R100m. Despite the Covid-19 pandemic and nationwide lockdown, South32 told investors in August that the deal was on track for completion by the end of this calendar year.
Given that both Seriti and SA Energy Coal have long-term supply contracts with Eskom, post-merger Seriti will be the largest coal supplier to Eskom with a market share upwards of 30%.
Seriti supplies coal to Eskom’s Tutuka, Lethabo and Kriel power stations and has an upcoming mining project, the New Largo Coal Mine, intended to supply coal to Kusile power station. SA Energy Coal supplies the Duvha and Kendal power stations from its Khuthala and Ifalethu mines.
Though the proposed transaction will lead to an increase in concentration in coal supply to Eskom, the commission found it is unlikely to affect Eskom’s bargaining and buying power position given the individualised nature of negotiations of the long-term contracts.
“In spite of the structural change from the merger, Seriti’s newfound position is unlikely to directly dovetail into greater leverage power for the merged entity during contract renegotiations and is therefore unlikely to have a significant effect on the price of coal to Eskom,” the commission said.
Sensitive information
Instead, the commission expects the power utility and Seriti will in future rely mutually on the continuation of cost-plus contracts — long-term coal supply agreements in which Eskom is charged at cost, plus a modest margin.
However, the commission is concerned that the deal could facilitate the exchange of commercially sensitive information between SA Energy and the coal mining companies in which the shareholders of Seriti hold interests. The merging parties have thus agreed to put measures in place to ensure there is no flow of such commercially sensitive information, the commission said without providing further details.
The commission identified public interest concerns regarding job losses and the community trust to be established for the benefit of communities adjacent to SA Energy Coal’s mines.
As such, the parties have promised to cap merger-related retrenchment at 25 skilled employees for a two-year period and have committed to a nine-month timeline to identify and select the beneficiaries of the community trust that will own a stake in SA Energy Coal.
The sale of the coal assets also depend on the successful renegotiation of a loss-making supply agreement to Eskom’s Duvha power station.
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