Eskom
The coal supply contract with Exxaro expires in December 2015

On Monday, South African power utility, Eskom, voiced its concerns over the recent media reports regarding the potential closure of the Arnot coal mine in Mpumalanga. The reports claimed that if the utility does not extend Exxaro’s contract to supply coal to the Arnot power station, then many will lose their jobs.

Energy security is an obligation

The utility stressed that as a state-owned company they are mandated to provide a secure power supply whilst supporting socio-economic growth and development. This includes supporting local businesses in a cost-effective manner.

Coal supply

With efforts to ensure a reliable supply of coal, the power company has entered into supply contracts with various suppliers, whom are required to adhere to the agreed terms and conditions, which include production and cost targets.

The utility said in a statement that it has a cost-plus contract with Exxaro for the supply of coal to the Arnot power station, which expires in December 2015.

They have “been in ongoing discussions from as early as 2013 about the challenges that the Arnot Mine has in meeting its production targets, and its high cost of production,” the utility said.

This has resulted in a non-renewal of the supply contract, and Eskom is seeking an alternative supplier at a lower cost.

Negotiations underway

According to the utility, the Request for Proposal (RFP) for coal supply for the Arnot power station was implemented in August 2015 through a public procurement process.

The RFP is currently under review and the bid winner will be announced once this process has been completed.

“Eskom continues to engage with Exxaro in line with contractual obligations, however, this will not be at the expense of taxpayers,” the power company stressed.

The utility added: “It is important to note that Exxaro owns Arnot Mine and therefore it has the sole decision on whether it closes it or not. Eskom is focused on driving socio-economic development whilst retaining jobs.”

Eskom concluded in a company statement that it is “deeply concerned about the reported potential closure of this mine and the potential loss of jobs. But the reality is that economically, it cannot afford to continue buying coal at ZAR900 ($62) per tonne.