South African state utility Eskom has plans to buy ‘high quality but expensive’ coal reserves from multinational mining and commodity company Glencore Optimum Coal, global mining news platform mining.com reported.
The coal supply deal is valued at ZAR3.7 billion ($318.5 million) and includes the purchase of 5 million tonnes of coal per annum, half of the coal mine’s annual production.
Reports suggest the quality of the coal is not suitable for South Africa’s broiler technology resulting in the costly process of blending it down to a more usable substance.
Eskom is being forced into high-cost coal supply agreements due to large coal producers such as Anglo American and BHP Billiton being in the process of exiting the local market.
Eskom, which relies heavily on coal resources to fire its power plants which supply 95% of South Africa’s electricity, will need between 22 million and 40 million tonnes of coal a year from new suppliers over the next 10 years, mining.com reported.
Eskom’s plans for SA energy sector
South African finance minister Nhlanhla Nene said during his 2015/2016 budget speech that Eskom will be selling assets amounting to ZAR23 billion ($2 billion), which will be allocated to assist in its power struggles.
The first amount of ZAR10 billion ($830 million) will be issued in June this year and the remainder will be given at the end of this year.
Nene will not disclose which assets are under review until they have officially been sold.
“I know you are all eager to know which asset it is, but we won’t say until it is sold,” said Nene.