The Glencore-Eskom confrontation escalates

A DISPUTE over Glencore’s refusal to supply Eskom Holdings with coal at a price equivalent to 8c (R1.03) a ton was set to worsen as the state power utility said it would seek to increase a contract penalty.

Eskom is demanding R2 billion from Glencore’s Optimum mine because it says the quality of the coal it uses at its Hendrina power plant breaches a contract with the Londonbased mining company. Glencore has said it can’t afford to keep the mine open unless the contract, the penalties in which lower the effective price to that level, is renegotiated.

Optimum has started the bankruptcy proceedings with the administrators of that programme suspending the supply agreement last week.

“There might be additional penalties” because of the suspension, Khulu Phasiwe, a spokesman for Eskom, said on Friday. The company was still looking into its legal options and would not renegotiate the contract to supply 5.5 million tons of coal a year until 2018, he said.

The dispute comes as Eskom struggles to supply enough power to the country. Supply to factories and mines has been rationed and the lack of electricity has hindered investment and slowed economic growth.

The 2 000-megawatt power plant in Mpumalanga had a 40day stockpile of the fuel and coal could be trucked to Hendrina from other suppliers if necessary, Phasiwe said.

Piers Marsden and Peter van den Steen, the joint business rescue practitioners for Optimum, had offered as an interim measure to supply coal to Eskom at Optimum’s cash cost of production, they said.

“The companies act allows them to suspend” the contract, Louise Brugman, a spokeswoman for the business rescuers, said. “So no further penalties can be incurred.”

Optimum has announced plans to fire 630 workers and had its licence temporarily suspended by the government earlier this month as a result.

Glencore shares on closed 2.53 percent down to R32.33 on the JSE on Friday. – Bloomberg