Johannesburg — POWER utility Eskom plans to review its coal supply agreement with miner Exxaro Coal as part of its efforts to lower input costs.

This will be the second major contract Eskom has reviewed this year. The first led to the cancellation of the Rio Tinto Alcan smelter electricity supply deal in Coega in October.

Eskom is also reviewing longstanding contracts with BHP Billiton and recently put on ice contracts for Kusile, one of two new coal-fired plants.

Reviewing major contracts is part of Eskom's cost-cutting measures and putting some on hold will buy the cash-strapped utility some breathing space.

Eskom has come under fire for its escalating costs, especially so-called primary costs for the procurement of coal. In the year ended March this year, primary energy costs soared from R18,3bn to R25,3bn.

The plan to review the Exxaro contract, signed last year, has prompted the miner, the main coal supplier to Eskom, to suspend its funding programme for a project associated with the Medupi power plant, Eskom's other new coal-fired plant.

It would also suspend extra contracts associated with the R9bn Grootegeluk Medupi expansion project, a mine that will supply the power station.

The initial date for the delivery of first coal from the project was scheduled for the fourth quarter of 2011 and an increase to full production by 2014.

It was expected to create 2000 jobs during construction.

Eskom said yesterday that the move was part of an overarching review of all input costs. Brian Dames, Eskom's chief officer for generation business, said this included coal procurement contracts "with a view to drive these input costs down".

Unfavourable economic conditions also contributed to the review.

"The world has totally changed since the conclusion of the agreement," Dames said. The two companies could finalise the review of the agreement in February .

Exxaro financial director Wim de Klerk was adamant yesterday that the review of the agreement was not a threat to its Grootegeluk project.

"I have no doubt that the (Exxaro) project will continue. It is important to ensure that our time is consistent with theirs," De Klerk said.

Dames said the review would not affect the scheduling of the Medupi power station. "It does not shift the timelines at all. The (Exxaro) project was always ahead (compared with the Medupi power station project). So we had to align the two," he said.

The two companies are in separate discussions regarding the delivery of coal from July next year, to be used at the Medupi power station for pre- commissioning testing and the creation of stockpiles, Exxaro said.

According to the agreement the coal mine will supply an average of 14,6- million tons of coal a year to the Medupi power station, after expansion of the Grootegeluk mine.

Eskom yesterday also announced that it had signed a 17-year coal supply agreement with ARM Coal and Xstrata for the supply of coal to its Majuba power station.