Eskom is working on an agreement to cap coal costs as the energy regulator examines the utility’s request for above-inflation tariff increases.

“I had a very good meeting with our four large suppliers who make up 70 percent of coal requirements” needed for electricity generation, chief executive Brian Dames said yesterday. “They have committed to work with us on this and we’re hoping that this week we can take that further.”

The utility, which relies on coal for more than 80 percent of generation, is seeking a 16 percent advance in average electricity prices each year until 2018 to avoid a repeat of power shortages that halted mines and factories in 2008.

The National Energy Regulator of SA concludes public hearings today on the application and will make a decision by the end of February.

The government considered coal a strategic mineral and regulations would be passed to ensure South Africa had security of supply, Mineral Resources Minister Susan Shabangu said at a conference on Wednesday.

The government did not want companies to lose export contracts and had not decided whether to impose export levies on coal, she added.

An annual 16 percent hike would raise prices to R1.28 a kilowatt-hour by 2017 from 61c now. “A lot of work has to go in especially to get their commitment and achieve 10 percent and then if we can do that then surely we can do better than that,” Dames said of a possible agreement with coal suppliers.

Eskom’s proposed tariff hikes might hit state hospitals and clinics hardest, Public Servants Association general manager Danny Adonis said.

“Health departments are already experiencing problems with paying their service providers,” he added.

The higher power prices may have a negative impact on the viability of many businesses, the SA Local Government Association said.

The 16 percent tariff increase included 3 percentage points to support the cost of introducing independent renewable energy producers through a build program of 3 725 megawatts, Dames said. – Bloomberg