HomeIndustry SectorsFinance and PolicyEskom wants government to declare coal strategic resource

Eskom wants government to declare coal strategic resource

18 September 2013 – Changes to South Africa’s Mineral and Petroleum Resources Development Act (2002) propose allowing the state to declare some minerals strategic to secure supplies and force mine operators to process some output locally. While companies such as Anglo American and other resource companies have said the provisions will negatively affect its business and deter investment, Eskom is in favour of these.

“There is some pressure on the availability of coal,” Kannan Lakmeeharan, Eskom’s acting head of technology and commercial operations, says. “The bill should declare coal should be a strategic resource.”

While Eskom, which uses coal to generate 85% of its power, has contracted 80% of the amount it needs for the next five years, it anticipates a shortage of as much as 40 million tonnes a year after 2018.

Eskom proposes that exports of some grades of coal should only be permitted after being offered to domestic energy producers. It also wants to be consulted prior to the awarding, granting and renewal of coal exploration and mining licenses.

Eskom is concerned that coal prices could rise by two to three times from current levels by 2020, which would have a significant impact on the price of electricity. The company’s costs for coal increased 24% in the year through March 2013, and the national energy regulator of South Africa (Nersa) has only allowed single- digit increases in each of the five years through 2018.

“The trend in our market is towards international export prices,” Lakmeeharan says. “Eskom is not asking for price regulation. We want to contract on commercial terms but we also want to make sure that the price is based on the cost plus fair returns for local energy use.” Eskom needs to secure 1.9 billion tonnes of coal over the next 40 years.