Johannesburg - Eskom and Anglo American could soon butt heads over the performance of Anglo’s New Denmark colliery, which supplies coal on a long-term contract to Eskom’s Tutuka power station in Mpumalanga.
This is after the utility this week said it was unacceptable that it was paying R1 600 per ton for coal from the mine.
Eskom yesterday also voiced unhappiness with the quantity of coal from the colliery and urged Anglo American to “radically” improve the mine’s performance.
Eskom said the R1 600 per ton price included the total cost of operating a mine, as well as the amortisation costs of historical expenditure.
Strategic advantage
“The investment in New Denmark Colliery was done on a cost-plus basis with an intention of providing a strategic advantage to Eskom and the country in relation to security of supply and pricing. This arrangement is currently not yielding the intended results,” Eskom said. In cost-plus coal contracts, Eskom pays for operating costs of the collieries.
Eskom spokesman Khulu Phasiwe said yesterday that the quantity of coal from the mine had decreased, but the utility had not yet had to supplement coal supplies to the Tutuka power station. “We do not want to get to that point.”
Anglo American did not deal with Eskom’s gripe in detail, but disputed that its coal cost R1 600 per ton. “We confirm that for the period in question (April last year to March this year), we invoiced Eskom an average of R668 per ton, in line with the contract, mine progress and agreed budget between Eskom and Anglo American,” it said.
Eskom said a R668 per ton price was still more than 70 percent higher than Eskom’s average coal price.
Eskom planned to transfer assets at coal mines it helped to pay for on to its own balance sheet, which would involve a “painful process” of discussions with companies including Anglo American and Exxaro Resources, Eskom executive for generation Matshela Koko said this week.
Lawyers for Eskom reviewed coal mines and concluded the utility had “substantial” assets, said Koko. He declined to comment on an overall value of the assets.
Eskom’s plans to lay claim to some of the assets at mines it subsidised to help bring them to life came as the firm sought to reduce what it paid for coal by re-evaluating supply partners and contracts.
That re-assessment threatened to derail efforts by some companies to sell mines to help return to profitability.
In its latest annual report, Eskom said almost all its cost-plus mines required significant investment or recapitalisation in order to increase production or to maintain existing production, putting strain on the utility’s financial resources.
“Lower production is expected from these mines until the collieries can be recapitalised. Although production at some cost-plus mines has reduced, we still pay all the operating and ongoing capital… to sustain the current operations of these collieries, resulting in an increase in the cost per ton of coal,” Eskom said.
Meanwhile, in his comments in the annual report, Eskom chief executive Brian Molefe allayed fears of immediate coal shortages. “It is important to note that we are no longer under the threat of a coal cliff over the next five years. We have identified coal sources for all of our power stations,” Molefe said.
* With additional reporting by Bloomberg
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