We demonise coal at our very real socio-economic peril
It’s not only the mines and jobs that are at risk; coal is the largest foreign currency earner for SA and contributes immensely to the country’s trade balance
SA’s coal mining sector is suffocating under the weight of two developments, one global and the other domestic. At the global level, the trade spat, or war, as is often described in the media, between the US and China has tempered coal markets causing prices to decline sharply.
We are a real-life depiction of the adage about the fate of grass when two bulls fight. Here is how. SA is among the top producers of thermal coal. In some markets, we compete with, among others, Australia and Indonesia. Australia is the world leader and they are bullish about promoting the coal industry which makes a massive contribution to their economy. (The recent election victory of pro-coal coalition parties attests to this).
The biggest market of SA coal in recent times has been India, which is building new coal-fired power stations for its fast-industrialising economy. China has recently blocked coal imports from Australia through the port of Dalian. Although Chinese authorities have been cagey about the reasons, there is a strong belief that the trade tension between the US and China, of which Australia is an indirect participant, has led to the Dalian import blockage. Australia is America’s ally circling within the orbit of Western democracies. Like the US, Australia also barred China’s Huawei from building a G5 communications network.
SA’s export-oriented coal miners cannot wait for the global trade tension to come to an end. If it drags on longer, it will threaten their viability and put thousands of jobs at risk
The consequence of China restricting coal imports from Australia is that the latter has diverted a huge part of its supplies to India, thus undercutting SA’s market share there with huge volumes at cheap prices. Geographic proximity to India favours Australia over SA. Effectively, the international market for coal has been artificially shrunk, causing relative oversupply and a nosedive in prices. Under normal trade conditions, Australia accounts for 20% of China’s coal imports. China powers its gigantic economy with coal.
The US-China spat has undermined confidence in international markets. With Australia now eating into our India market share and the prices of coal declining, some SA coal miners might struggle to sustain operations. A positive tweet from US President Donald Trump or a softer response by President Xi Jinping to Trump’s aggressive approach, or a combination, could restore confidence in what was a robust market a few months ago. By December last year, coal prices across major export markets were hovering above $95 a tonne. They have since dropped by a whopping 40%.
SA’s export-oriented coal miners cannot wait for the global trade tension to come to an end. If it drags on longer, it will threaten their viability and put thousands of jobs at risk. In an inter-connected global economy, whatever Trump tweets has huge implications for us on the southern tip of Africa, especially if it’s interpreted by market players as a threat to global commerce.
Coal as currency
It’s not only the mines and jobs that are at risk. Coal is the largest foreign currency earner for SA and contributes immensely to the country’s trade balance. The fall in coal prices means that even the weaker rand is not able to ameliorate the deteriorating situation. In 2018 alone, coal topped the list of SA’s five major exports with its value reaching R80.2bn. Gold, platinum, iron ore and vehicle sales trailed coal. As a small economy, there is very little we can do to resolve the super-power rivalry of the world’s two biggest economies: the US (and its allies) and China. But there is no doubt that the whole world is united by its dependence on mutual co-operation rather than belligerence between the two.
Our government could consider using international platforms to get the two bulls to find an amicable solution to their problem — and spare the grass. Fortunately, SA enjoys sound trade and investment relations with both the US and China.
Few people are prepared to speak about the reality of the positive impact coal has on the economy because they can easily be labeled climate change denialists or defenders of a dirty fossil fuel
While we are relatively weaker in terms of global influence, we have full control of the domestic environment. Yet, we have somehow allowed it to be part of the deteriorating picture for coal. There is a persistent and growing negativity about coal. While the increasing importance of renewables cannot be doubted in light of valid environmental concerns, the debate about coal and renewable energy sources needs a dose of realism.
Diversification of energy sources can only be a strength in our national grid, but renewables cannot replace coal as a base load. At least not at this stage. The ongoing debates, however, fail to recognise this and the calamity that will befall SA if the transition from coal to an energy mix is handled badly.
The tone has been set to discourage investment in coal, with little or no regard for the economic and social consequences. The single biggest challenge facing SA at the moment, if we need to remind each other, is unemployment. Major social ills, not least inequality and extreme poverty, flow from this. According to the Stats SA labour force survey for the first quarter of 2019, there are 16.3-million employed people and 6.2-million unemployed people between the ages of 15 and 64 years. This means SA’s unemployment rate has increased from 27.1% to 27.5%.
This is a disaster that should warrant a co-ordinated emergency response between the government, private sector and labour to focus on job creation as a national priority. Coal mining alone employs about 86,000 people, excluding downstream industries in which coal is a feedstock. These are figures renewables will never match, partly because we are mainly a consumer country rather than a producer of renewable technologies.
Coal’s positive impact
Few people are prepared to speak about the reality of the positive impact coal has on the economy because they can easily be labeled climate change denialists or defenders of a dirty fossil fuel. It should not be that way. We should be concerned about the reality — and the reality now is that major coal companies are not investing as they should in coal. Except for Sasol’s welcome investment in new coal mines, there hasn’t been any major investments by big mining companies.
While the lack of investment could partly be due to policy uncertainty in the past, there is no doubt that negative public perceptions of coal are being factored in by investors. The much publicised — and unwisely celebrated — withdrawal of SA banks from funding privately owned coal-fired projects has added to the negativity towards coal.
To guarantee SA’s energy supplies in the medium to long term, we need long-term investment commitments in coal. Yet it won’t happen under an increasingly hostile environment. The risks of not investing in coal without the discovery of an equivalent base load replacement is that inadequate, available coal supplies, high prices to Eskom, and load-shedding (even after renewables have been taken into account) cannot be avoided inthe future.
In addition, massive infrastructure such as Transport Freight Rail’s dedicated coal line, Eskom’s power generation capacity, and Richards Bay Coal Terminal — all which add huge economic value to the coal economy — could become wasted investments. To avoid this scenario, we should manage the transition to an adequate energy mix with care to make sure that at no stage do we run out of power, export income, or experience huge job losses and social havoc in mining towns.
No comprehensive social impact study of the implementation of the integrated energy plan has been conducted. We have yet to know the full impact of downscaling on coal consumption by Eskom and the implementation of carbon tax.
In the meantime, the negativity on coal is cementing reluctance among investors. We are, therefore, losing out on many opportunities by not accepting coal as a comparative advantage. We need more investment to mine huge reserves (more than 30-billion tonnes and enough for the next 100 years); create new black entrepreneurs; empower communities through the new Mining Charter; and utilise our capital investments in Transnet, Eskom and the Richards Bay Coal Terminal.
More importantly, we need to utilise coal to give people jobs.
• Bayoğlu is the executive chair of Canyon Coal.