Eskom chief executive Brian Molefe is making no bones about the legal route that the power utility will take. Picture: Simphiwe Mbokazi

Johannesburg - A showdown is looming between Eskom and Glencore over coal supplied to the power utility’s Hendrina power station in Mpumalanga.

Eskom chief executive Brian Molefe yesterday made no bones about the legal route that Eskom would take if Glencore’s Optimum unit stopped supplying coal to the power utility.

The supply agreement related to Optimum and Hendrina and is set to expire at the end of this month.

“As far as Hendrina is concerned, we agreed on a price of R150 a ton with Glencore and to the extent that if they are not able to deliver on their side of the contract and they cause us damages but we can recover in court to the extent that we buy coal elsewhere because they are not delivering.

“It can’t be right that when you have a contract to be supplied at that price the right just disappears. It is certainly not in our constitution,” said Molefe, who joined Eskom in April from state logistics group Transnet.

Speaking at Eskom’s interim results presentation, Molefe said at least two extensions requested by Glencore for a review of the agreement had expired, with the last one due to expire on Monday.

“It is not a contract really, its a period during which they have agreed to supply us at R150 per ton, beyond November 30th, our position remains that Optimum is under contractual obligation to supply us with coal at R150 per ton.

“We are legally entitled to penalties. They have to pay us and so our position has not changed and we await to see how they will respond to that,” he said.

Glencore and Eskom are involved in a bitter spat over the price at which Eskom is supplied. Glencore is looking to be either released from the obligation or that Eskom pay R530 a ton for coal for its Hendrina plant.

At the height of the dispute, Glencore stopped coal supplies to Eskom but resumed supplies after Eskom sourced from elsewhere at less than the R530 Glencore wants and still avoided loadshedding.

Interim results

Molefe said Eskom had also decided to start collecting its coal from the Waterberg Coal Company to avoid paying penalties.

He said Eskom would rather spend R23 billion building stockpile infrastructure because the utility would still retain the assets than to pay a penalty of R8bn, which was “a deadweight loss”.

Eskom yesterday announced its latest interim results. These results showed that a 13 percent increase in power prices helped Eskom’s net income climb to R11.3bn in the six months to September, from R9.3bn a year earlier.

While this had “stabilised” Eskom, the utility would continue to request higher tariffs to pay off debt, chief financial officer Anoj Singh said.

“It will certainly not impact our tariff decisions relating to Nersa,” Singh said, referring to the National Energy Regulator of South Africa, which sets electricity prices. “We have a massive debt burden that still needs to be serviced.”

The volume of electricity sold fell to 107 307 gigawatt-hours, a fourth consecutive first-half decrease, as Eskom was not able to meet demand and users sought alternative sources, known as grid defection. Eskom needed about R237bn of funding in the five years to 2019 and had secured 84 percent of the R46bn needed this year, Singh said.

The company is owed 32.3bn by customers, including large industrial users and municipalities. Soweto owes R9.8bn, 95 percent of which is debt that is more than 60 days overdue.

* Additional reporting by Bloomberg

BUSINESS REPORT