Eskom urged to return to cost-plus coal mines to save itself and the industry

Coal miners have called on Eskom to revert to cost-plus mines to save both the industry and itself.

Speaking at the 2018 Joburg Indaba on Tuesday, South32 COO Mike Fraser said coal was expected to remain a big part of the SA energy mix and a significant portion of Eskom’s costs.

Because of this, reverting to long-term contracts would be mutually beneficial for both Eskom and for the coal industry, Fraser said.

Senior coal analyst at XMP Consulting Xavier Prévost said that while there were enough coal resources in the ground investment was desperately needed. The price of coal had increased 100-fold since 2007, Prévost said.

As such, “cost-plus mines are a must — that will control the prices, otherwise nothing will”.

MODEST MARGIN

In the past, “cost-plus” mines had been built in conjunction with Eskom on the condition that coal would be supplied to the utility at cost with a modest margin on top. But former Eskom CEO Brian Molefe announced his intention to break ties with such mines.

Molefe claimed the utility’s procurement policy required coal suppliers to have a black ownership target of over 50%.

This has influenced global mining companies to exit coal investments in SA, including South32, which will spin off its coal assets into a new blackowned company.

Nelisiwe Magubane, a nonexecutive director at Eskom, told delegates that the utility’s new board recognised the challenge high coal prices posed for the business in the future.

SYNERGY

She noted that in collaboration with the mining sector there could be a synergy to ensure lower-cost coal procurement.

Magubane said the new board had also found that the majority black-owned supplier policy was not policy at all but instead an aspiration.

Going forward, cost cutting would be important for the future sustainability of Eskom, Magubane said.