Exxaro disputes Eskom s move
Eskom has declared force majeure on two coal supply agreements with Exxaro until a month after the lockdown has been lifted. But the major SA coal miner intends to challenge it.
Eskom has declared force majeure on two coal supply agreements with Exxaro until a month after the lockdown has been lifted. But the major SA coal miner intends to challenge it.
Exxaro Resources, the largest supplier of coal to Eskom, said on Monday that the national utility had served its subsidiary, Exxaro Coal, with letters calling force majeure on the coal supply agreements in place for the supply of coal to the Medupi and Matimba power stations.
Force majeure, French for “superior force”, is a common clause that excuses an entity from fulfilling its contractual obligations in the event of a natural or unavoidable catastrophe.
According to Exxaro, Eskom indicated in the letters the force majeure will be applicable for the period starting on April 16 until one month after the national lockdown has been completely lifted. The effect of this is that Eskom will not be taking the full contractually agreed tonnes of coal for the specified period.
Exxaro supplies coal to the two power stations from its Grootegeluk mine in Limpopo. In the case of Medupi, due to a take-or-pay contract in place, Eskom has been obliged to purchase coal which Exxaro has produced for the mega-station power station even though the project’s completion has been delayed by several years.
While the lockdown has been extended to May 1, there is uncertainty over when it will be completely lifted. Eskom will lose as much as R5bn in revenue for every month of lockdown due to lower power demand.
“After consultation with its legal advisers, Exxaro is of the view that this event does not constitute force majeure as stipulated in the coal supply agreements, as the power stations are still capable of supplying power,” the coal miner said in a statement. “Exxaro will vigorously defend its position in this matter and take the necessary action.”
The force majeure follows on another one Eskom has declared in relation to power purchase agreements with independent power producers (IPPs).
Eskom advised the IPPs that energy produced will at times not be used or paid for by the utility until energy demand returns to normal levels.
THIS EVENT DOES NOT CONSTITUTE FORCE MAJEURE AS STIPULATED IN THE COAL SUPPLY AGREEMENTS
Exxaro said it viewed the communication from Eskom as not in accordance with the spirit of the call by President Cyril Ramaphosa to businesses to continue paying contractors.
The coal mine said it will engage with Eskom to seek a mutually acceptable resolution. “As Eskom has not indicated the extent of the reduced coal offtake, the potential impact on Exxaro cannot be quantified until discussions with Eskom have been finalised,” it said.