Development State in full cry – Eskom to demand “assets” from coal miners

You have to wonder where South Africa’s Developmental State madness will end. Puffed-up Eskom CEO Brian Molefe, basking in the security of a Gupta-installed directorate and load-shedding-free 11 months, was in full cry yesterday “forgiving” those who predicted more power outages and rejecting concerns over the proposed nuclear build. That falling demand for Eskom’s sole product is the real reason supply is being met does not register. Nor the global reality that nuclear has become a very poor financial and environmental alternative to renewables. But it gets even worse. Eskom has its lawyers poised to launch at attack on assets currently owned by private sector coal mines which supply its power stations. Its warped thinking, perhaps, is if the Zuptas and a new Mining Minister can prize a major business like Optimum Coal deal away from one multinational, other miners can be squeezed just as readily. Someone should put Molefe on a plane to Caracas. Or to save costs, remind him of Herbert Spencer’s wise words: “There is a principle which cannot fail to keep a man in everlasting ignorance – contempt prior to investigation.” If you thought education was expensive, try ignorance. – Alec Hogg    

By Paul Burkhardt

(Bloomberg) — South Africa’s power utility plans to transfer assets at coal mines it helped to pay for onto its own balance sheet, which will involve a “painful process” of discussions with companies including Anglo American Plc and Exxaro Resources Ltd., an executive said.

Lawyers for Eskom Holdings SOC Ltd., South Africa’s biggest coal buyer, reviewed coal mines in the country and concluded the utility has “substantial” assets, Matshela Koko, executive head of generation, said after the Johannesburg-based utility’s full-year earnings presentation on Tuesday. He declined to comment on details or an overall value of the assets.

Coal is loaded onto a truck at the Woestalleen colliery near Middleburg in Mpumalanga province, in this September 8, 2015 file photo. REUTERS/Siphiwe Sibeko/Files

Eskom’s plans to lay claim to some of the assets at mines it subsidized to help bring them to life comes as the company seeks to reduce what it pays for coal by re-evaluating supply partners and contracts. That reassessment threatens to derail efforts by some companies to sell mines to help return to profitability.

Anglo, formed in South Africa almost a century ago to benefit from Johannesburg’s gold-mining boom, is disposing of its coal and iron-ore businesses to save itself. Both units have operations in the country. The sale of the local coal mines will probably run into next year as bidders struggle with attempts by Eskom to transform its relationship with coal suppliers, two people with knowledge of the matter said in April.

Tutuka Coal

Eskom hasn’t yet shared its position on the review of cost-plus assets, Anglo spokesman Moeketsi Mofokeng said by phone. The company supplies the utility with almost a quarter of its coal.

Read also: Gupta’s Coal-gate: Eskom’s Molefe says focus on cost, not mine ownership

Eskom is paying Anglo 1,600 rand ($108) a metric ton for coal to fuel its 3,654-megawatt Tutuka plant in the Mpumalanga province, which is “unacceptable,” Koko said. Anglo invoiced the utility an average of 668 rand a ton in the year through March 31, in line with the contract it has with the power company, Mofokeng said. Coal leaving the country’s port of Richards Bay for export is at $61 a ton.

Exxaro is in talks with the utility for funds to develop the Matla coal mine, the Pretoria-based company said last month. Eskom in December didn’t renew a contract with the company’s Arnot mine, which supplied a power plant by the same name for 40 years.

“In relation to Arnot, we indicated that it’s a cost-plus asset that belongs to Eskom, given that they provided the capex to develop the mine,” Mzila Mthenjane, Exxaro’s head of stakeholder engagement, said in a text message. “It’s a step in the right direction and we anticipate engaging in this regard on all cost-plus assets.”