Eskom may not take contracted Wescoal supply amid lockdown
As with Exxaro, the utility has invoked force majeure on its coal supply agreements with the junior miner
Eskom has notified yet another coal supplier that it may not take delivery of its coal amid a nationwide lockdown that has hit electricity demand.
Wescoal, a junior miner which derives half its revenue supplying coal to Eskom, said on Tuesday that Eskom has served it with letters calling force majeure on the supply agreements for coal to its power stations.
Force majeure is a common clause that excuses an entity from fulfilling its contractual obligations in the event of a natural or unavoidable catastrophe. The effect of force majeure on contracts with Wescoal is that Eskom will not necessarily be taking the full, contractually agreed tonnage of coal from now until a month after the national lockdown is completely lifted.
The lockdown, which was implemented on March 27 and has since been extended to May 1, has severely hit economic activity in the hopes of slowing the spread of Covid-19. Electricity demand has dropped significantly as a result. Globally, energy markets are in crisis and US oil prices fell to -$37 on Monday over storage capacity concerns.
Eskom's declared force majeure on Exxaro's coal contracts, Sasol shares came under pressure today and BHP warns of tough times ahead.
Eskom spokesperson Sikonathi Mantshantsha told Bloomberg on Tuesday that the utility has 50 days of coal supply and may invoke force majeure because its storage space for stockpiles is limited. “It’s a precautionary note saying that we may ask them to halt supply,” Mantshantsha reportedly said.
Wescoal said the potential effect on its business cannot be quantified until discussions with Eskom have been concluded.
This is also the case for Exxaro Resources, Eskom’s largest supplier of coal, which, on Tuesday, announced that the utility had declared force majeure relating to coal supply contracts to the Matimba and Medupi power stations in Limpopo.
Seriti Resources, the second-largest supplier of coal to Eskom, however, said it is not affected.
Earlier this month, Eskom also warned the wind industry that it may not be able to take or pay for the power wind farms generate, as it is obliged to do.
The wind industry has questioned the legality of the move while Exxaro is also not taking the matter lying down. After consultation with its lawyers, the miner said it will defend its position as it does not believe the current situation constitutes force majeure as it is stipulated in the coal supply agreements.