Reply by Minister of Public Enterprises, B Hogan, on questions posed in the National Assembly for written reply, February 19 2010
Question no. 288
Mr P van Dalen (DA) to ask the Minister of Public Enterprises:
(1)(a) From whom is Eskom procuring its coal stock, (b) how much coal is procured from each company for each power station and (c) what (i) was the total usage of Eskom in each of the past five years for each of its power stations, (ii) amount of money was spent on coal, (iii) was the total power contribution of each power station in each of the past five years and (iv) are the coal stock piles in each month in each of the past five years at each power stations;
(2) Whether all of the suppliers are Black Economic Empowerment (BEE) compliant; if not, (a) which companies are not BEE compliant and (b) what is the value of the contracts that were given to each; if so, what is the value of the contracts given to each company in each of the past two financial years;
(3) Whether any contracts have been extended to companies that (a) were BEE compliant and (b) companies that were not; if not, why not; if so, what are the relevant details;
(4) Whether there are any problems with the procuring of coal; if so, what are the relevant details?
(5) Whether there is a plan of action to deal with the security of supply of coal for the next 40 years; if not, why not; if so, what are the relevant details?
Reply:
1(a) Eskom procures its coal from the following companies:
* Anglo Coal South Africa (Pty) Ltd
* BHP Billiton Energy Coal South Africa (Pty) Ltd
* Blackwattle Colliery (Pty) Ltd
* Eyethu Coal (Pty) Ltd
* Exxaro Coal (Pty) Ltd (Exxaro)
* Imbabala Coal (Pty) Ltd
* Ingcambu Investments (Pty) Ltd
* Kuyasa Mining (Pty) Ltd
* Liketh Investments (Pty) Ltd
* Mashala Resources
* Nu Coal Mining (Pty) Ltd
* Optimum Coal Mine (Pty) Ltd
* Shanduka Coal (Pty) Ltd
* Sudor Coal (Pty) Ltd
* Umcebo Mining (Pty) Ltd
* Xtsrata/Zingisa Joint Venture.
(1)(b) Eskom has a portfolio of contracts with each of the suppliers which meets its requirements of 121,2 million tons per annum (2009) for the Eskom system. All coal requirements in excess of those supplied by the long-term agreements are procured through short to medium term contracts. The detail in this regard is confidential and its disclosure could be prejudicial to Eskom's commercial negotiations in support of security of supply.
(1)(c)(i)The table below indicates the amount of electricity produced by coal-fired power stations, and the quantities of coal burnt in the past FIVE years. The detail per power station is confidential and its disclosure could be prejudicial to Eskom's commercial negotiations in support of security of supply.
Financial year: 2005
Electricity produced by coal-fired power stations (GWh): 251,914
Coal burnt (Mt): 136,4
Financial year: 2006
Electricity produced by coal-fired power stations (GWh): 206,606
Coal burnt (Mt): 112,1
Financial year: 2007
Electricity produced by coal-fired power stations (GWh): 215,211
Coal burnt (Mt): 119,1
Financial year: 2008
Electricity produced by coal-fired power stations (GWh): 222,908
Coal burnt (Mt): 125,3
Financial year: 2009
Electricity produced by coal-fired power stations (GWh): 211,941
Coal burnt (Mt): 121,2
2005 -change from calendar to financial year; reflects 15 months data
1(c)(ii)The following table indicates the expenditure on coal in each of the past five years:
Financial year: 2005
Expenditure on coal (R million): 8 885
Financial year: 2006
Expenditure on coal (R million): 8 337
Financial year: 2007
Expenditure on coal (R million): 9 920
Financial year: 2008
Expenditure on coal (R million): 12 205
Financial year: 2009
Expenditure on coal (R million): 20 198
2005 - change from calendar to financial year; reflects 15 months data
(1)(c)(iii) The response to question 1(c) (i) reflects the electricity generated by coal fired power stations over the five year period since 2005. The detail per power station is confidential and its disclosure could be prejudicial to Eskom's commercial negotiations in support of security of supply.
(1)(c)(iv) The system average coal stock pile (days) over the past five years is shown in the following table. The detail per month and per power station is confidential and its disclosure could be prejudicial to Eskom Eskom's commercial negotiations in support of security of supply.
Financial year: 2005
System average coal stock pile (Days): 36
Financial year: 2006
System average coal stock pile (Days): 35
Financial year: 2007
System average coal stock pile (Days): 29
Financial year: 2008
System average coal stock pile (Days): 13
Financial year: 2009
System average coal stock pile (Days): 41
2005 -change from calendar to financial year; reflects 15 months data
(2)(a-b) All Eskom's suppliers meet the requirements of the Mining Charter and the Broad Based Black Economic Empowerment (BBB-EE) Codes. The total value of contracted coal to BEE Suppliers in the financial year 2007/08 was approximately R 7.4 billion and in 2008/09 was approximately R11.3 billion. The BBB-EE figures for 2009/10 are unavailable as the financial year closes on 31 March 2010. The detail per supplier is commercially sensitive and confidential and its disclosure could be prejudicial to Eskom's commercial negotiations in support of security of supply.
(3)(a-b) All suppliers are contracted to either long-term, medium-term or short-term contracts with specific expiry dates.
(4) The key procurement risks relate to the availability of the volume of coal required by Eskom, the quality of the available coal and the cost. Eskom has established a strategy to mitigate the risks and has engaged with the mining companies to deal with challenges, which include:
* The geographic location of coal and the associated logistical arrangements to transport the coal to the power stations
* The availability and accessibility of coal resources for the preferred long term contracts sought by Eskom
* Competition with export markets and the associated impacts on cost and quality.
The establishment of longer-term green fields coal mines is hampered by escalating development costs and more complex geology (in particular in Mpumalanga where augmentation of supply to Eskom's existing power stations is required) and competition for scarce resources, most notably capital, human resource skills and water. Transportation infrastructure (for example general freight rail in the Mpumalanga area, a heavy haul line linking the Waterberg coal field to the Mpumalanga area) is also a limiting factor.
Securing coal for domestic energy needs must be a national priority. The current regulatory environment may not sufficiently protect South Africa from the international market for steam coal and aggressive interest shown by India and China to secure access to imported coal.
(5) Eskom has developed a long term coal supply strategy which aims to secure coal for electricity production for at least the next 10 years. The strategy will continuously be reviewed and updated for extension into the future to ensure future security of coal supply. Some of the key elements of the strategy are as follows:
* Optimal portfolio of long, medium and short term coal sources: The Eskom portfolio of contracts will consist of long, medium and a small portion of short term coal sources to meet electricity demand requirements. All three types of contracts are included as there is no single ‘best' contract type
* Prices based on efficient costs plus a fair return: Prices of future coal contracts will be based on efficient costs, appropriate risk sharing and fair returns. This is to ensure sustainable coal procurement.
* Investment in low cost, flexible coal transport infrastructure: Where possible, Eskom and its suppliers will invest in rail infrastructure and conveyors
* Quality management and selective beneficiation to reduce total cost of ownership: This is required to address the impact of the deteriorating resource base, which has resulted in many stations receiving coal below the design quality levels
* Risk based stock management: Power station stock levels will be based on coal supply risks and will be periodically re-evaluated as risks change
* Investment in long term infrastructure: For example, water infrastructure and underground coal gasification.
* Improve cooperation with major stakeholders: Eskom will continuously engage with all stakeholders to ensure security of coal supply from a national perspective.
Source: Department of Public Enterprises
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