Eskom planning to invest up to R12bn in cost-plus coal mines

Eskom has plans to invest up to R12bn in mines over the next five years to ensure the quality of its coal supply, its COO has said.

These will be cost-plus mines that Eskom would develop in return for long-term coal supply at cost, plus a modest margin.

Speaking at the IHS Markit South African Coal Export  Conference on Thursday, COO Jan Oberholzer said previous decisions to stop investing in cost-plus coal mines had jeopardised a predictable supply for the utility.

Eskom is in dire financial straits with R419bn in debt, which it is unable to service from its own revenue. Lack of investment has caused supply issues for Eskom of late.

Last year, Eskom had six of its 15 coal-fired power stations with less than 10 days of coal supply — well below the minimum threshold of 20 days. An aggressive drive to procure coal has yielded some results. There are now only three power stations with less than 10 days of coal supply, Oberholzer said. And while it is in the grips of a financial and operational crisis, it has a long-term strategy to move back to cost-plus mines.

“Over the next five years, we will invest between R10bn and R12bn on them,” Oberholzer said. This would not just secure supply, but also ensure the power plants receive the correct quality of coal, he said.

Incorrect coal quality is now compounding Eskom’s problems, with an impact of about 1,000MW, Oberholzer said.  “My mining colleagues are not playing ball,” he said. “If you supply Eskom, please understand your responsibility to the country.”

Apart from cutting investment in cost-plus mines, other decisions taken in the past have put Eskom in a difficult situation. The construction of power stations Medupi and Kusile was done in a hurry and now present design challenges and are not delivering the output that was envisaged, Oberholzer said.

Ultimately, Eskom needs urgent relief from its debt burden and that will depend on the outcome of the utility’s tariff application to the National Energy Regulator of SA (Nersa), which asked for an annual tariff hike of 15% for the next three years.

Oberholzer said he believed that the shareholder — the government — fully understood Eskom’s need for debt relief.

steynl@businesslive.co.za