Exxaro's coal fight with Eskom heats up

March 3, 2016, 10:11am


News 24

A war of words erupted on Thursday between Exxaro Resources [JSE:EXX] and Eskom over the expired Arnot Coal Mine contract for Arnot power station.

Dissatisfied with the high prices of coal, the financially embattled Eskom ended its 40-year coal supply contract on December 31. Since then, Exxaro has shut down its operation at the mine, affecting 1 800 jobs.

While Eskom said an arbitration process continues with Exxaro, the mining company said the state-owned enterprise rejected its latest proposal.

“This week Eskom informed us that they were not at a confidence level at which they can commit to the proposed plan,” it said in a statement on Thursday.

Eskom hit back, saying “some issues raised by Exxaro are premature as they are subject to the current process”.

“It is regrettable that Exxaro, the owner of the mining rights, decided to close the mine without fully exploring economically viable options,” Eskom said in a statement.

DA shadow minister of Mineral Resources James Lorimer believes the contract was cut in favour of a new one with the Gupta-Zuma owned Optimum coal mine.

"Eskom ended the contract... in favour of coal to be trucked in from Optimum," he said. "That looks like a duck."

Eskom said it is disappointing that Exxaro has given an impression that it was Eskom’s decision to initiate closure of the mine, which it says is not true.

“Exxaro has the option to continue with the mine without an Eskom contract, which would save jobs,” said Matshela Koko, Eskom’s head of generation.

“Exxaro’s revised coal-supply agreement contract that was submitted to Eskom in February 2016 promises to halve the costs per tonne for Eskom, but lacks substance and commitment on their part,” said Koko.

Exxaro said if Eskom does not extend its contract, the power utility will be under obligation to pay the outstanding amounts to fulfil all its mine closure obligations as agreed in the coal supply agreement.

This includes topping up the environmental liability, assuming all costs arising from Section 189 retrenchments and assuming all costs due and payable as a result of the mine closure.

'Eskom responsible for jobs lost'

The company believes job losses will be entirely Eskom’s fault.

“The closure of Arnot mine will result in the abandonment of about 70 million tonnes of mineable coal and impact negatively on more than 1 800 jobs,” it said. “Exxaro is committed to reaching a solution that could (if accepted by Eskom) preserve a large amount of the jobs at Arnot mine.

“However, we cannot absorb the Arnot labour force within the other Exxaro mines as we have filled all vacancies from our other mines which recently reached the end of life.”

Eskom said it remains committed to exploring economically viable solutions. “However, not at the expense of the South African consumer,” it said.

This comes as many sectors in society criticised energy regulator Nersa’s approval to increase the electricity tariff to 9.4% for 2016/17, following Eskom’s application to recover R22.7bn from consumers.

Eskom CEO Brian Molefe said the decision to approve an electricity price increase of only 9.4% does not help Eskom’s financial sustainability and “will have operational consequences”.

“We will do our best to minimise the risk of load shedding, striking a balance with Eskom’s already depleted balance sheet,” he said in a statement.

“We note with concern the decision on open cycle gas turbines, which will guide Eskom’s operations in the future in terms of balancing the energy supply and demand in a bid to avoid load shedding,” he said.