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South Africa: Just No End to the Problems at Power Utility Eskom
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Business Day (Johannesburg)
23 July 2008
Posted to the web 23 July 2008
Siseko Njobeni
Johannesburg
POWER utility Eskom is fretting over local coal production, even forecasting that SA faces a shortfall of 100-million tons in 2017.
For a company frantically trying to get additional capacity into the national grid by, among other things, building more coal-fired power stations, Eskom should, indeed, be bothered, if not afraid. Its overreliance on coal for energy generation makes it susceptible to trends in the global coal market.
In its 2007 annual report, Eskom says: "Globally, coal is the fastest-growing energy source. Demand for coal is soaring, especially in the Indian and Chinese markets." This growing demand has not only threatened supply but, as could be expected, also pushed up prices. The South African coal export price at the Richards Bay Coal Terminal recently broke through the $115 a ton level, compared with $53 a ton at the beginning of last year.
Chamber of Mines spokesman Jabu Maphalala says coal miners will respond to demand. "It must, however, be taken into account that it takes time to increase production on an existing mine or to establish a new mine. The chamber has established a mechanism for interaction between its members and Eskom to enhance the level of co-operation and information sharing," he says.
It does not help Eskom that there is a growing appetite for low-quality coal exports.
Suddenly, Eskom has to compete internationally. "The quality of coal required by importers is declining, particularly in respect of the Indian coal market. This makes many current coal sources and, more importantly, potential future sources, with some beneficiation, attractive to the export market. Such coal was, historically, only suitable to the Eskom market," it says in its annual report.
With the global coal market opening up, producers are not complaining. Maphalala says the industry will continue to respond to demand for coal from the export market "where the price received makes commercial sense and within the infrastructure capacity". Global buoyancy gives local producers an opportunity to sell their coal at high international prices.
Concern about coal supply has caught the government's eye. The minerals and energy department has commissioned a study on management of local coal resources to ensure reliable security of supply.
Eskom makes a case for steps to ensure security of coal supply. "Eskom is totally dependent on the South African coal mining industry to supply it with coal. The changes in the global market are placing Eskom under increasing risk in terms of securing future supplies from the local market, in which the production capacity has not kept pace with increases in both local and international demand.
"It is critical that local production be facilitated to ensure long-term security of supply for electricity production."
Coal has featured prominently in Eskom's electricity supply woes. The utility says low coal stocks and wet conditions have contributed to the serious capacity constraints that saw the country face a possibility of a total blackout earlier this year.
On the coal stocks front, the utility has built these up to over 23 days' supply, a far cry from the stockpiles of less than 10 days in January. The lowest stockpile at an Eskom power station was 3,3 days.
The National Energy Regulator of SA (Nersa) has criticised Eskom for allowing the stockpiles to run down. In a hard-hitting report this year, Nersa said Eskom's management had deliberately allowed the stockpiles to deteriorate to enhance its financial position.
That allegation did not sit well with the utility's erstwhile chairman, Valli Moosa. Leaping to Eskom management's defence, Moosa said that was "a misguided statement, and can never be substantiated in fact".
Eskom recently strengthened its coal-procurement capacity with the two-year secondment to the entity of former Kumba Iron Ore CEO Ras Myburgh. A former Eskom employee, he manages the utility's overall coal procurement strategy.
Myburgh has his work cut out. Eskom recently increased its use of coal procured on short-term contracts, an arrangement that has proven not only expensive but a logistical nightmare.
The utility, which has the huge task of ensuring that the lights do not go out, also has to worry about things it should normally not care about.
Eskom has seen its use of short-term contracts soar from 2% in 2001 to 21% this year. Because the coal procured under the short-term contracts has to be delivered by road, Eskom has to bear the costs associated with badly maintained roads.
"Eskom is assisting with the repair of roads where necessary in order to facilitate coal transport and road safety," it says in its annual report.
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If that is the case, why do we have the South African National Roads Agency? The agency's mandate, as stated on its website, includes "to strategically plan, design, construct, operate, rehabilitate and maintain South Africa's national roads".
I am sick and tired of excuses and more excuses PRIVATIZE.
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