Eskom is proceeding with plans to raise the price it pays Australian mining company South32 to source coal for its Duvha power station in Mpumalanga for four years in order to avoid the risk of "sterilising" power generation of 2,000MW.
Such a loss of capacity would add to SA’s energy crisis at a time when the economy is enduring renewed power cuts.
The existing coal supply agreement, which runs to 2024 with the global miner that was spun off from BHP Billiton in 2015, is among the utility’s cheapest, but has become loss-making for the mine. The successful renegotiation of the deal is now a critical condition to conclude the sale of the coal mining business to Seriti Resources. The empowered mining company headed by Mike Teke will rival Exxaro Resources as Eskom’s largest coal supplier when the sale goes through.
At a briefing on the state of the system on Monday, Eskom CEO André De Ruyter said Eskom has submitted a proposal for a renegotiated contract to the Treasury but "didn’t receive a positive response".
De Ruyter’s comments come a day after the Sunday Times reported that the failed proposal was to increase the coal price from R416 a tonne to R478.40 a tonne for the remaining four years of the current contract, which ends in 2024, and for a further 10 years under a new contract extending to 2034.
After the Treasury’s unfavourable response, a decision was taken not to proceed with the proposal, De Ruyter said.
"We are, however, preparing another application to Treasury for an extension of the contract period by a further four years with an increase in the contract price. This is a significantly smaller application," he said.
This is because Eskom has inadequate coal handling facilities to procure all of the coal required for Duvha by road — as opposed to supply from the adjacent mine by conveyer belt, as is currently the case.
"If we want to avoid 2,000MW of capacity being sterilised by not buying from the current mine, then we have to get this four-year window of opportunity for us to put the necessary infrastructure in place," De Ruyter said.
Thereafter, Eskom has committed to go out on the open market for a 10-year contract period to supply Duvha.
"This is a balance between approaching the market — getting competitive bids in — and the constrained logistics situation that we have at Duvha power station with a view to ensure we don’t sterilise the capacity we have at that power station due to a lack of coal supply," De Ruyter said.
There is a very small number of contracts on which a difference of opinion exists between Eskom and the Treasury, he said. The relationship is a positive one "where the Treasury plays its role as the watchdog over public finances in SA".
A spokesperson for Seriti said the company remains hopeful that the transaction will be concluded in the second quarter of this year.
SA has been in the grip of stage 2 load-shedding, equivalent to 2,000MW being removed from the grid, since Wednesday last week.
Speaking at Monday’s briefing, Eskom COO Jan Oberholzer said while every day of load-shedding "is unacceptable", the power utility remains committed to its programme for reliability maintenance and midlife refurbishment.
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