SA before profit, Mabuza tells Eskom coal suppliers

Eskom chair and acting CEO Jabu Mabuza has called on coal suppliers to put SA ahead of their own interests, saying the embattled power utility should not have to count high coal prices among its many problems.

Ultimately, something has to be done to save Eskom. “We are all going to have to share the pain,” he said at the 2019 Joburg Indaba on Thursday.

“It is important we put the interests of our country first ahead of ... company profits.”

Mabuza’s comments come just days after mineral resources & energy minister Gwede Mantashe, public enterprises minister Pravin Gordhan and trade & industry minister Ebrahim Patel met suppliers and renewableenergy power producers to discuss with them how they could assist Eskom to lower its costs.

The utility’s purchases of coal constitute its single largest expense, and rose 9.7% over the past financial year, according to Eskom’s annual report.

The bigger problem though was the shift by previous Eskom management to short-term contracts, which involve trucking coal long distances rather than buying coal from the “tied mines” it helped develop, which sell to Eskom on a cost plus basis.

In 2019, Eskom bought 42% of contracted volumes on shortterm contracts, whereas in 2009, this was 28.5%.

Mabuza said Eskom wanted to talk to suppliers about possible renegotiation.

“There is definitely scope to renegotiate the commercial terms — if they are negotiable. If they are not, it’s fine.”

Eskom now has R450bn of debt, which it cannot service from its revenue.

ENERGY SUPPLY

Its debt burden is expected to continue to grow as it battles to complete two large and overdue coal-fired power stations to increase the energy supply.

A plan to restructure Eskom’s debt and split the company into three parts is expected before the end of October, when the medium-term budget policy statement is delivered.

While coal suppliers agreed to an engagement to see where costs can be cut, they have also questioned Eskom’s efficiency and high cost structure in general.

Minerals Council CEO Roger Baxter said: “Coal accounts for 30% of Eskom’s costs. We also asked what they will do about the other 70%.” In reply to questions on Thursday, Eskom said that to “ameliorate the rising coal and transport costs, it was in the process of implementing its long-term coal strategy, which reverted back to dedicated longterm coal contracts”.

LONG-TERM STRATEGY

“The long-term strategy will underpin the security of coal supply, as well as a predictable price path.

In the interim, however, the utility will continue to engage with certain coal suppliers where prices are deemed to be excessive.”

Speaking at the Deloitte Africa risk conference, also on Thursday, Mabuza said it was going to take time to repair ethics and the moral fabric that was required to turn Eskom around because the rot had set in so deeply throughout the organisation.

Mabuza said private companies, not only those that were found complicit in state capture, but also suppliers, had contributed to Eskom’s downfall.

“We’ve almost identified success in business with doing things the wrong way,” he said.

Companies that had raided Eskom should not be allowed to do business with any other state-owned company, he said.