Gordhan labels 17% coal cost hike “extraordinary” as he prepares for talks with mining industry

THE risk of Eskom load-shedding will rise at the end of August as the onset of warmer weather would affect generation plant performance, said Eskom COO, Jan Oberholzer on Tuesday. The state-owned utility would also resume deferred maintenance,

He warned that for at least the next 18 months, the system “… remains unpredictable”. Oberholzer was speaking at Eskom’s full-year results presentation in which it announced a net loss of just over R20bn, less than the R25bn some expected.

The presentation was also attended by Pravin Gordhan, public enterprises minister, who had some choice words for South Africa’s coal sector, saying the 17% hike in coal costs was “extraordinary”. He added: “We need to have tough talks as to whether they are serving the national interest. This triple inflation number is not acceptable. I intend to engage with industry”.

The poor performance of Eskom’s ageing power fleet and underperformance of the units coming on line at the two new power stations, Medupi and Kusile, has contributed to the entity’s rising costs and declining sales. Many customers, both rich and poor, have opted for non-Eskom power, like gas or renewables.

Outgoing CEO, Phakamani Hadebe, said Eskom’s new board and management appointed 18 months ago discovered within four months that the operational performance was not as good it had been represented by Eskom’s previous incumbents. Addressing operational issues was the biggest challenge they faced; even greater than addressing the entity’s poor governance and financial oversight.

Hadebe said one of the issues that management had to address was the broken relationship with some of the utility’s largest coal suppliers, as a result of contracts that were terminated. “Some were still angry – but we have now signed 41 contracts,” he said.

He may have been referring to Glencore, the Swiss-based mining and trading company, and Johannesburg’s Exxaro Resources.

Eskom’s previous CEO, Brian Molefe, imposed a massive penalty on Glencore’s contract to supply Hendrina power station from the Optimum Coal Mine, accusing Glencore of supplying sub-standard coal.

Exxaro’s contract to supply Arnot power station from Arnot colliery was terminated at the end of 2015, amidst accusations from Eskom that the coal was too expensive. However, the high cost of the coal was a result of Eskom’s failure to inject the necessary capital to develop additional coal seams.

Eskom’s previous management insisted it did not need to sign long-term contracts with large suppliers, but could access all the coal it needed on short-term contracts with smaller coal mines that were majority owned by black empowerment entities. It has since become obvious that Eskom cannot access enough coal to meet its needs on the basis of short-term contracts.

CFO, Calib Cassim, said although the utility burnt less coal in 2018/19 than in 2019/20 as a result of lower coal sales, it had to pay more for coal; not just on a rand per tonne basis, but also because on short-term contracts it had to pay transport costs.


Hadebe said in the last few months there has been a pleasing improvement in the utility’s energy availability factor (EAF) to 70.95% in July from 69.95% at the end of March. The unplanned capability loss factor (UCLF= unexpected downtime) has remained at 7000-8000 megawatts instead of the 9500 MW which would have required load-shedding. The units in operation at the new power plants are performing better and coal stock days have increased to above minimum levels, except at Kriel power station.

As a result of tackling these issues, the use of open cycle gas turbines (OCGTs) was only 4.5%, below the target of 5% of power generated.

Hadebe said the utility has set aside R45bn over five years to increase maintenance on the transmission and distribution infrastructure.

But it will take about two years to deal with operational performance. Eskom has appointed 205 specialist plant operators and has also made permanent appointments of power station managers at all plants, except where there are disciplinary processes under way.

The post Gordhan labels 17% coal cost hike “extraordinary” as he prepares for talks with mining industry appeared first on Miningmx.


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