Utility to request proposals for Kusile coal supply
Eskom is set to issue a request for proposals to supply coal to the Kusile power station, but some doubt the power station’s viability
Eskom will shortly issue a request for proposals (RFP) to supply coal on a long-term contract to the Kusile power station, which is under construction, Ayanda Nteta, acting GM for fuel sourcing at Eskom, said on Thursday.
Anglo American’s New Largo coal project next to Kusile near Witbank would have the substantial capacity needed to supply the 4,800MW power station. Anglo and Eskom have signed a memorandum of understanding relating to supply, but no work has begun on a mine because it does not meet Eskom’s black ownership requirements, raising doubt about the power station’s viability.
New Largo is understood to be one of the assets Anglo is planning to sell. Nteta, who was addressing the IHS Markit South African Coal Export Conference 2017, said that in its RFP Eskom would indicate the total volume and the duration of its requirements, but that respondents could state how much coal they could supply and over what period. "It will depend on what the market has to offer. If you have coal for two years or for 30 years you can tender that," she said.
Eskom spokesperson Khulu Phasiwe said, on the sidelines of the event, that Eskom intended to procure coal for Kusile from several different suppliers to ensure security of supply if, for example, one mine experienced production disruptions. Kusile’s first unit is now being synchronised to the grid, for which it has enough coal in the short term, but longer term contracts should be in place by the end of Eskom’s 2018 financial year, Phasiwe said.
Nteta told the conference that Eskom had revised its coal procurement strategy over the past year, focusing on planning, contract negotiation, supply management, logistics and stockpile management. Its objectives were to achieve a delivered cost in line with the national energy regulator’s price determination and a balance between short-and long-term contracts, for security of supply.
She said there was an incorrect perception that Eskom bought coal on the spot market. Its short-term contracts were for three years and its long-term contracts for a minimum of 10 years. It did not intend to pay more for short-term contracts than long-term ones.
Over the past 12 to 24 months, Eskom has been procuring coal by way of open tender rather than unsolicited bids. Although some coal companies said this discouraged new mines, Eskom argued that open tendering encouraged new entrants, and provided greater transparency and certainty. Transformation was imperative and Eskom intended to procure more coal from black youth, women and people with disabilities.
Nteta said contrary to perceptions that buying coal from new black producers would be more expensive, the contracts it had awarded to these suppliers over the past year were at a lower cost.
Nteta and Joel Raphela, deputy director-general of mineral policy and promotion in the department of mineral resources, responded to questions seeking clarity on the government’s intention to designate certain minerals, including coal, "strategic", which could result in caps on prices or exports. Export coal prices from SA have risen to about $86/tonne after a five-year period of declining prices, when they fell below $50/tonne.
Raphela said discussions on designating coal a strategic mineral were underway between the government and other stakeholders and these deliberations had to be finalised as soon as possible, hopefully this year.
Nteta said competition from exports for Eskom coal had increased, especially for the higher qualities, but its power stations could use a range of qualities. For SA’s domestic market as a whole, there had to be a balance between exports and supplying local customers. Banning exports would have negative consequences, she said.
Raphela, who was delivering a speech on behalf of absent Mineral Resources Minister Mosebenzi Zwane, said the need for further development of SA’s coal sector could not be overstated, given its contribution to energy generation and employment.
Nteta was also questioned on Eskom’s policy on prepayments for coal, after it was revealed it had made a substantial advance payment last year to the politically connected, Gupta-owned Tegeta Resources for coal from Optimum Coal Mine. She said Eskom had prepaid for coal for several years both to cost-plus mines (that it owns) and to fixed-price suppliers, but every supply agreement had different clauses, relating to its reserves, capital and equipment, so it was impossible to make general comments about prepayments.