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Govt unveils ‘radical’ plan to reshape SA coal

David McKay | Mon, 10 Dec 2012 15:18

article3[miningmx.com] – SOUTH Africa’s domestic coal mining sector was set to undergo a radical, “game-changing” restructuring, according to the South African government which added that “urgent steps” were needed to secure up to 2.1 billion tonnes (Bt) of thermal coal supplies for Eskom, the state-owned utility company.

Billed as a “game-changing” initiative by Eskom, public enterprises minister, Malusi Gigaba, said today the private sector, apprised of government’s plans last week, was “generally supportive” of the initiative in which Eskom would “radically transform” its procurement strategy to include new, black-owned miners.

Eskom estimated that between now and 2040, it would require 4Bt of coal of which 1.97bt had been contracted, but a further 2.1Bt was still to be secured. Of this, Eskom believed some 1.3Bt could be provided by new, black-owned companies.

“We have no option for any back-up plan to secure future coal. We have to make sure new mines open and that more than the majority of them are by black-owned companies,” said Brian Dames, CEO of Eskom.

Capital for the new investment would be drawn from a mining fund expressly founded for new mining companies, as well as the consolidation of existing junior coal mining companies.
Other initiatives included establishing an inland terminal – or coal pantry – to provide a platform for beneficiation of coals, encouraging new mining companies to engage in coal trading activities, and efforts by Eskom to use its purchasing power to lift black-ownership of existing companies to 50% plus 1% from the current legislated target of 26% under the Minerals and Petroleum Resources Development Act (MPRDA).

Currently, 61% of coal bought by Eskom was procured from eight mines which belong to the likes of Anglo American, BHP Billiton Energy South Africa, Xstrata and Exxaro Resources, the only major black-owned coal mining company listed on the JSE.

“From 2018, the shortfall is significant and allows a window for development, including the Limpopo and Waterberg coalfields. It is important to start the planning process now,” said Dames.
Commenting on the establishment of a fund, that would have the support of the Industrial Development Corporation (IDC), the Development Bank of Southern Africa (DBSA), among other funding agencies under government’s control, Dames said: “We would like to see its start as soon as possible so we can start implementation.”

Private sector participation was welcomed, said Gigaba: “The development fund won’t rely on DFIs [development funding institutions], but it will welcome private sector participation”. Of the more than 5,000 coal miners addressed about the plan earlier today, which Gigaba said were receptive to the restructuring plan, there were a number of small private equity firms.

The initiative ultimately falls under the aegis of the Presidential Infrastructure Coordinating Commission (PICC), the future of which was captured in the Infrastructure Development Bill, gazetted in parliament on December 6. In terms of the PICC, some R845bn was be invested in infrastructural projects – through Infrastructure Strategy Projects, known as ‘Sips’ – in three years, and some R4 trillion over 15 years.


Calls for private sector involvement in Eskom and government’s plans comes at a difficult time for existing coal producers.

Earlier this month, Dames said in parliament that he was seeking a “national pact” to control coal price inflation while Gigaba told Miningmx on December 5 that he would support the notion of declaring South Africa’s coal resources a strategic asset at the African National Congress’ (ANC’s) elective conference in Mangaung.

article3These comments have been interpreted by the market as anti-investment developments, and that South Africa’s coal sector is ex-growth.

Dames said in an interview today that the proposed pact on coal price inflation, and any other measures to apply export duties on coal should be viewed through the lens of Eskom’s Multi-Year Price Determination (MYPD3) application which asked for an increase in electricity tariffs of 16% a year from 2013 to 2018, assuming coal price inflation did not exceed 10%.

“The national pact relates to the performance of the cost plus mines but in 2018 we recognise that we will have to cater for a much higher coal cost,” Dames said.

Dames added that to help finance the new generation of mines, Eskom would replicate its cost plus model whereby miners are able to lock in a margin above the cost of production.

Ref: http://www.miningmx.com/page/news/energy/1483974-Govt-unveils-radical-plan-to-reshape-SA-coal#.UmAOGNLJnTk

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