The enormous operation puts into perspective the severity of the coal supply crunch Eskom faces. Picture: BLOOMBERG
The enormous operation puts into perspective the severity of the coal supply crunch Eskom faces. Picture: BLOOMBERG

Cash-strapped Eskom may pay as much as R100m a month in a desperate bid to truck coal stockpiles from Limpopo to supply two power stations in Mpumalanga, 400km away.

An estimated 200 trucks will leave Lephalale daily in a bid to transport 1-million tonnes of Medupi coal to its Kendal and Kusile power stations.

The enormous operation puts into perspective the severity of the coal supply crunch Eskom faces. Already in the grips of a financial crisis, it will now incur significant additional costs in procuring coal over and above an ongoing wage negotiation. With about R350bn in guarantees from the government, Eskom poses the single largest risk to the economy.

The Treasury has repeatedly said it does not have money to bail out the embattled utility.

The stockpiled coal comes from Exxaro’s Grootegeluk mine and was intended to feed the long-delayed Medupi power station, but due to a take-or-pay coal supply deal with the miner, the stockpile has grown to about 20-million tonnes.

Cost per tonne

Eskom spokesman Khulu Phasiwe would not be drawn on what the cost was to truck each tonne of coal. As Eskom already owned the coal, the only cost to Eskom was transport, he said.

Energy expert Chris Yelland said the true cost of transporting the coal was about R850 a tonne. "This includes an estimated R500 a tonne to transport the coal from Medupi to Kendal, as well as a sunk cost of about R300 to R350 per tonne for the coal procured by Eskom from Exxaro’s Grootegeluk coal mine and stockpiled at Medupi."

Based on an estimated 200 trucks a day holding 33 tonnes of coal each, Eskom would move about 205,000 tonnes of coal a month, or about 2.5-million tonnes a year.

"At a cost of R500 a tonne, Eskom could incur costs of some R100m a month in transport costs alone in getting the coal from Medupi to Kendal and Kusile by road," Yelland said.

Phasiwe said that the "coal delivery price" would be "lower than R800 per tonne that some experts have bandied around". He said moving the coal by truck was a short-term measure until Transnet can transport the bulk of the coal by rail.

Transnet Freight Rail confirmed on Monday it had already made a proposal to Eskom to transport 4-million tonnes a year by rail, although services to load and unload coal would still need to be contracted.

Even so, at these prices Eskom looks likely to exceed its primary energy budget. Group executive for generation at Eskom Thava Govender said in May additional coal had to be procured at an average cost of R400-R450 a tonne if the utility were to keep to its budget.

Wage increases are also likely to break the budget, although a deal is yet to be struck. Eskom is said to have offered a 7.5% increase, but unions have demanded 8%. Housing allowances and bonuses remain sticking points.

Coal industry experts have warned of a "coal cliff", at first predicted to occur in 2020 when supply from Eskom’s cost-plus mines, largely located in Mpumalanga, was expected to run out. These mines were built in conjunction with Eskom on the condition that coal would be supplied to the utility at cost with a modest margin on top.

Without renewed support from Eskom, large mines have not invested in any new coal ventures. Former Eskom CEO Brian Molefe dissuaded investment further when he announced the utility would break ties with cost-plus mines and procure coal from smaller miners.

Correction: July 17 2018

An earlier version of this article misstated Chris Yelland's estimation of the amount of coal moved in a year. It said 25-million tonnes and should have said 2.5-million tonnes.

steynl@businesslive.co.za