Eskom BEE coal policy not official
• Board found former CEO Molefe’s supply conditions were ‘aspirational’
An Eskom policy to procure coal only from majority black-owned coal suppliers, which influenced large miners such as Anglo American and South32 to divest from the local sector, was never official policy.
An Eskom policy to procure coal only from majority blackowned coal suppliers, which influenced large mining houses such as Anglo American and South32 to divest from the local sector, was never official policy.
Eskom nonexecutive director Nelisiwe Magubane said the new board, installed in February, had looked through the Eskom policies but found no evidence of a supposed requirement that coal suppliers must be 50%-plus black-owned.
“It wasn’t in any of the policies,” she told delegates at the Joburg Indaba last week. Rather it appeared to be “an aspiration”.
Under former CEO Brian Molefe, Eskom categorically stated that its coal procurement policy required all mines that supplied coal to its power stations to have a black ownership target of more than 50% throughout the life of the mine concerned — significantly more than even the 30% empowerment shareholding required by the new mining charter.
“It created a fear in the market that nobody without 50% black ownership could supply to Eskom,” said Xavier Prévost, a senior coal analyst at XMP Consulting. The purported policy was one of the reasons major mining houses moved to divest from SA coal in recent years.
Anglo sold its last Eskomtied coal mine in January 2018 with no prospects of returning to the business.
In 2017 diversified miner South32 announced it would spin off its local coal asset, SA Energy Coal. At the time its CEO, Graham Kerr, reportedly said the company did not meet Eskom’s contract requirements.
South32 COO Mike Fraser told the audience at the indaba last week he was optimistic about the prospects of coal, but such a business required access to both domestic and global markets. With the “current ownership structure”, the company cannot compete in the domestic market, he said. The spin-off expects to create a black-owned coal company able to exploit opportunities available to it.
Exxaro, the largest supplier of coal to Eskom, has in the past expressed doubt that its 50%plus requirement was policy when, in late 2016, it faced pressure from the utility because it announced its BEE deal had expired and its empowerment shareholding would fall to 30% until a new deal was concluded. According to Eskom spokesperson Khulu Phasiwe, “Eskom’s 50% + 1 requirement is based on the shareholder BBBEE [broadbased BEE] compact for procurement spend, which states that 40% of Eskom’s spend should go to BBBEE Level 1 companies. Coal purchasing is the largest cost element in Eskom’s income statement and the biggest lever for it to achieve shareholder aspiration which was endorsed in the Eskom coal sourcing strategy in 2012.”
Also under Molefe, the utility announced its intention to move away from cost-plus mines, where Eskom in the past developed mines in conjunction with mining houses so as to ensure a steady and affordable supply of coal. Instead, Molefe said the utility would procure from smaller miners.
The utility is increasingly facing coal supply shortages. Last week Bloomberg reported that Eskom had less than three weeks of supply at 10 of its 15 baseload power stations. Fraser and Prévost said Eskom needed to go back to cost-plus mines if it were to bring down costs and secure long-term supply.