Min­ers push Eskom to change how it buys coal

Play­ers within the coal in­dus­try ar­gue that they can earn more by ex­port­ing their prod­uct in­stead of be­ing locked into less lu­cra­tive longterm agree­ments with the power util­ity.

Finweek English Edition - - THE WEEK - By David McKay edi­to­rial@fin­week.co.za

pres­sure is grow­ing on Eskom to change its coal pro­cure­ment strat­egy. This would see it play­ing more di­rectly in the spot mar­ket, buy­ing smaller vol­umes of the fuel so that it can ben­e­fit from quick-fire price changes.

Sev­eral JSE-listed com­pa­nies that mine coal have said that the im­prove­ment in the ex­port mar­ket price for coal – al­most dou­ble on a year-on-year ba­sis – is giv­ing the in­dus­try more op­tions than just sup­ply­ing Eskom.

There’s also the sense that the sur­prise res­ig­na­tion of the util­ity’s CEO, Brian Molefe, amid claims of im­pro­pri­ety, will has­ten a change in tack at Eskom. It was Molefe who spear­headed the move away from in­vest­ing in fixed-cost mines in favour of short-term con­tracts.

“We will need to see what Eskom is go­ing to con­tract from ECC [for­merly To­tal Coal South Africa],” said Exxaro Re­sources CEO Mx­olisi Mgojo. “And there is a de­ci­sion that we have to make: whether to get [pro­vide] tonnes to Eskom on much more favourable terms.

“The sense is that Eskom will find it a dif­fi­cult process to se­cure tonnes un­der short con­tracts given the ex­port mar­kets,” said Mgojo. “They may have to go back up to 10-year con­tracts; that could be quite a big thing,” he added. Exxaro bought ECC ear­lier this year.

Mike Fraser, head of Africa operations for South32, said: “The re­al­ity might be dawn­ing at CEO of Eskom CEO of Exxaro Re­sources CEO of Keaton En­ergy Eskom that if they want to buy at the right price, then they will have to se­cure much larger vol­umes over a longer pe­riod of time.”

This was partly ow­ing to the dou­bling in the price of ther­mal coal year-onyear, but there were other fac­tors as well, in­clud­ing the fact that Tegeta was in the process of sell­ing some 7.5% of en­ti­tle­ment through Richards Bay Coal Ter­mi­nal to Vi­tol.

Wa­heed Su­laiman, CEO of Wescoal, told fin­week in July that ne­go­ti­at­ing a coal sales agree­ment (CSA) with the power util­ity for coal from his firm’s Eland­spruit col­liery in Mpumalanga was “a long and painful process”. This was af­ter an­nounc­ing plans to di­ver­sify into ex­ports with 1m tonnes of prod­uct planned.

Mandi Glad, CEO of Keaton En­ergy, said in Novem­ber that lender re­luc­tance to fi­nance Eskom-re­lated busi­ness – ow­ing to cor­po­rate gov­er­nance con­cerns – would see her firm look to ded­i­cate pro­duc­tion from its new R300m Moab­svelden project to the ex­port mar­kets. It was ini­tially ear­marked for Eskom. “We have had pre­lim­i­nary dis­cus­sions with fi­nan­cial in­sti­tu­tions,” said Glad. “The mar­ket is aware a num­ber of lo­cal in­sti­tu­tions have con­cerns re­gard­ing ex­po­sure to Eskom. In terms of those dis­cus­sions – and for the time be­ing – we are wait­ing for the off-taker be­fore we go back to the banks.”

Brian Molefe

Mx­olisi Mgojo

Mandi Glad

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