Eskom woes trickle down to would-be coal barons

The rev­e­la­tion that the Black Emerg­ing Miners De­vel­op­ment Fund failed to ma­te­ri­alise is seen as a blow to ef­forts to make the coal in­dus­try ac­ces­si­ble to emerg­ing miners.

Finweek English Edition - - THE WEEK - By Andile Ntingi edi­to­rial@fin­ Andile Ntingi is CEO and co-founder of GetBiz, an e-pro­cure­ment and ten­der no­ti­fi­ca­tion ser­vice.

as Eskom pre­pares to shut down five power sta­tions in Mpumalanga, it has also emerged that the state-owned power sup­plier aban­doned its plans to es­tab­lish a R1bn fund that was in­tended to solve the scarcity of in­vest­ment cap­i­tal for would-be coal min­ing en­trepreneurs and emerg­ing black miners. The rev­e­la­tion that the Black Emerg­ing Miners De­vel­op­ment Fund, un­veiled in 2014, never got off the ground is seen as a blow to ef­forts to open up the coal in­dus­try to emerg­ing play­ers, who were banking on ac­cess­ing cap­i­tal from the fund on favourable terms.

Eskom has con­firmed that it turned its back on the mooted fund as a re­sult of a slump in elec­tric­ity sales and a re­duc­tion in coal or­ders from coal mines due to the in­clu­sion of in­de­pen­dent power pro­duc­ers (IPPs) in the paras­tatal’s sup­ply chain, where the IPPs are now feed­ing wind and so­lar power into the national elec­tric­ity grid.

The fund was meant to pro­vide eq­uity and loan fi­nance to emerg­ing miners that have off-take con­tracts to sup­ply coal to Eskom for its power sta­tions, a plan that would have en­abled emerg­ing miners to gen­er­ate suf­fi­cient rev­enue to meet their debt obli­ga­tions and other op­er­at­ing ex­penses.

When the fund was an­nounced, it was pro­jected that it would boost Eskom’s strat­egy of sourc­ing more than 50% of its coal from emerg­ing miners over a fouryear pe­riod to 2018.

It is hardly sur­pris­ing that the elec­tric­ity paras­tatal – which spends roughly R200bn an­nu­ally procur­ing coal – is nowhere near this tar­get at the mo­ment, and it is highly un­likely it will reach it next year.

“Not­ing that the fund did not ma­te­ri­alise, Eskom’s ex­pen­di­ture in fi­nan­cial year 2016 with emerg­ing miners was 15.71% of to­tal coal spend­ing. For fi­nan­cial year 2017, the tar­get is 20% of to­tal coal ex­pen­di­ture,” said Eskom spokesper­son Khulu Phasiwe.

The drop in coal sales, which is hav­ing far­reach­ing con­se­quences across Eskom’s coal value chain, has been at­trib­uted to a stag­nant South African econ­omy that has led to a de­cline in elec­tric­ity con­sump­tion by con­sumers. As a con­se­quence, the power sup­plier will be shut­ting down the Grootvlei, Kriel, Cam­den, Hen­d­rina and Ko­mati power sta­tions in Mpumalanga over the next five years to re­duce the costs it in­curs to gen­er­ate elec­tric­ity.

Eskom is also pulling back on us­ing coal trans­port­ing com­pa­nies that move coal from mines to its power sta­tions via road. In early March, about 2 000 coal truck driv­ers protested in the coun­try’s cap­i­tal, Pre­to­ria, against the de­ci­sion by the paras­tatal not to re­new coal trans­porta­tion con­tracts when they ex­pire in May next year. The truck driv­ers and trade unions say the clo­sure of five mines in Mpumalanga could lead to the coal sec­tor los­ing 30 000 jobs. Phasiwe said coal min­ing op­er­a­tors that re­quire fund­ing for their ven­tures must ap­proach state-owned fund­ing agen­cies such as the In­dus­trial De­vel­op­ment Cor­po­ra­tion (IDC) and the National Em­pow­er­ment Fund (NEF), which have di­vi­sions that spe­cialise in fi­nanc­ing min­ing-re­lated busi­nesses. “Thus Eskom con­cluded that, given the con­text, de­vel­op­ment fund­ing in­sti­tu­tions were bet­ter placed to pro­vide the nec­es­sary fund­ing for coal re­source de­vel­op­ment,” Phasiwe pointed out. The South African Min­ing De­vel­op­ment As­so­ci­a­tion (Samda), which rep­re­sents ju­nior miners and black-owned min­ing firms, said the coal fund could have re­lieved the pres­sure on cap­i­tal-starved emerg­ing miners had it been launched. “We can spec­u­late that it [the fund] could have made a pos­i­tive im­pact, but it never took off. The is­sue of fund­ing re­mains a chal­lenge for emerg­ing min­ing com­pa­nies. We have been propos­ing for the for­ma­tion of a re­sources bank, funded from a por­tion of the roy­al­ties that the gov­ern­ment levy on min­ing com­pa­nies, as a so­lu­tion for ad­dress­ing the fund­ing chal­lenge for emerg­ing miners,” said Samda chair­man Peter Te­mane. Phasiwe said Eskom will fo­cus on its core busi­ness of gen­er­at­ing elec­tric­ity in­stead of risk­ing be­ing dis­tracted from its man­date by get­ting bogged down in mine de­vel­op­ment and op­er­a­tions of the com­pa­nies that it buys coal from. The power sup­plier will deal with coal sup­pli­ers as “arm’s length” coal sell­ers. With the fund now aban­doned, the prob­lem of scarcity of in­vest­ment cap­i­tal for ear­ly­ex­plo­ration projects is likely to per­sist. This prob­lem of­ten leads to many en­trepreneurs who hold coal-min­ing rights bat­tling to con­vert these rights into vi­able coal-pro­duc­ing mines, stalling or shat­ter­ing their dreams of be­com­ing coal barons. Oth­ers ap­ply for min­ing rights only to then sell them to es­tab­lished min­ing houses that turn them into multi­bil­lion-rand projects. Ap­ply­ing for min­ing rights and sub­se­quently sell­ing them at a profit has en­cour­aged a prac­tice of hoard­ing the rights, par­tic­u­larly by emerg­ing miners that do not have the cap­i­tal to de­velop them into op­er­a­tional mines. In a bid to stem the hoard­ing prac­tice, the depart­ment of min­eral re­sources (DMR) in­sti­tuted a “use it or lose it” pol­icy to pre­vent peo­ple from ac­cu­mu­lat­ing the min­ing rights for profit pur­poses with no in­ten­tion of ever de­vel­op­ing them into mines.

The fund was meant to pro­vide eq­uity and loan fi­nance to emerg­ing miners that have off-take con­tracts to sup­ply coal to Eskom for its power sta­tions.

A worker su­per­vises as a truck de­liv­ers coal sup­plies to the coal yard at the Grootvlei power sta­tion, op­er­ated by Eskom.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.