Chamber of Mines slams Eskom’s proposal for pact to cap coal prices

By Time of article published Nov 29, 2012

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Dineo Faku

The Chamber of Mines has warned that the proposal for a “country pact” to regulate the pricing of coal provided to Eskom, made on Tuesday by Eskom chief executive Brian Dames, would be detrimental to economic growth.

Bheki Sibiya, the chief executive of the chamber, was responding to a report in Business Day, which said Dames had given an undertaking in Parliament that if coal producers made a written commitment to provide Eskom with sufficient quality coal, and to keep price rises in line with inflation, the parastatal would adjust its application for tariff increases.

Eskom has applied for tariff increases of 16 percent annually for the next five years.

Dames, who was speaking during a briefing on the tariff application to the National Council of Provinces’ select committee on labour and provincial enterprises, said that if miners refused to sign up to the “country pact”, Eskom could not contain electricity price increases.

Xavier Prevost, a coal analyst with XMP Consulting, said yesterday that Dames’ proposal was debatable.

“I don’t think coal prices are increasing too much, as the export prices now have settled down to a nice, but low, level. Eskom will still have tariff increases, regardless of the coal prices. I think there are other factors heavier than that in the industry,” he said.

Mining firms were not available for comment yesterday.

Sibiya said: “Demanding that the suppliers of coal contribute to Eskom’s debt repayments through artificial price controls will not only discourage badly needed investments for coal production, but will also lead to an indirect subsidisation of all Eskom’s customers by punishing a single industry.”

He said Eskom’s attempt to regulate the pricing of its locally sourced fuel through this “country pact” would not only rob the country of the potential benefits of the coal resource, but would also erode the current benefits emanating from the coal mining industry.

“South Africa is blessed with an abundance of coal that is sufficient to meet not only Eskom’s needs, but also export demand. An unregulated market built on a transparent market pricing mechanism, where coal resources are abundant, can and will deliver the targeted outcomes of both Eskom and the government, while benefiting all stakeholders such as communities, investors and employees through the optimisation of employment growth and skills development.”

According to the report, Dames said Eskom’s latest tariff increase application assumed that its cost of coal would increase by no more than 10 percent annually.

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