While Eskom struggles to deal with R440 billion debt, the pending merger between two of its biggest coal suppliers – Australian mining house South32’s South African Energy Coal (Saec) and Seriti Resources – has raised more questions about whether the merger will make competitive procurement possible.
If the deal goes through and is approved by the Competition Commission, it is estimated that 45% of all coal purchased by Eskom would come from one supplier and 80% of all coal sourced from cost-plus mines will come from the same supplier.
In Eskom’s 2019 integrated annual report, the power utility said Seriti and South32 were respectively number two and three on the list of top 10 suppliers in the cost-plus mines and fixed contract price arrangements.
According to energy expert Chris Yelland, if the deal, which is estimated to be valued between $300 million and $350 million, (R4.4 to R5.1 billion) is approved, Eskom would be returning to a market dominated by a select few companies that would take the lion’s share of Eskom’s business.
“In the past there was definitely a case for introduction of diversity into a coal supply industry to Eskom and for export that was dominated by about five of the traditional coal majors.
“This move now seems to head in the opposite direction, returning to market dominance by a select few companies that take the lion’s share of Eskom’s business. This accounts for some 120 million tons a year out of a total production of about 250 million tons a year in South Africa,” said Yelland.
He said this concentration of the coal supply industry into a limited number of large coal mining companies posed some risk to effective competition in the sector, which the Competition Commission should investigate.
Seriti Resources, whose CEO Mike Teke allegedly donated large sums to the CR17 election campaign, is on the brink of acquiring South African Energy Coal (Saec), which supplies 14% of coal to Eskom.
This has sparked calls for closer scrutiny into the deal, which can result in the mining company becoming Eskom’s major coal supplier.