Pending Eskom coal deal puts SA taxpayer’s neck on the block again

The pending merger between two of Eskom’s biggest coal suppliers – Australian mining house South 32’s South African Energy Coal (Saec) and Seriti Resources – has not only raised questions about competitive procurement but could pose major risks for Eskom and South Africa.

Energy expert Chris Yelland said for Seriti there was the risk of becoming over-geared and over-extended with a need to develop new coal mines and recapitalise old ones in an environment where banks and financial institutions are pulling back from funding coal.

“It is clear that the envisaged Seriti-South 32 deal presents a number of risks to Seriti and its shareholders, as well as to Eskom and the people of South Africa.”

He set out some of the risks.

“The risk of taking over a long-term loss-making contract for supply of coal to Eskom’s Duvha power station, which is reportedly costing South 32 some R90 million a month; the risk of taking on losses of reportedly some R300 million a month at current coal prices for coal exported via Richards Bay Coal Terminal; and the risk of taking on massive environmental rehabilitation, and environmental and health impact liabilities,” said Yelland.

Yelland said for Eskom there were significant primary energy supply risks.

“The risk of having some 45% of its coal needs met by a single young, highly geared company; the risk of significant upside potential for the price of coal from a supplier with such a dominant market share; and the risk to Eskom’s business if such a supplier delivering 45% if its coal needs were to fail,” he said.

Yelland said for electricity customers and taxpayers there were significant risks too.

These included the risk of a spiralling electricity price trajectory driven by rising coal price demands of a few major suppliers.

The main risk for the taxpayer, he said, was having to foot the environmental liability bill if Seriti were to fail.

It was estimated that South 32’s coal assets had a rehabilitation liability of over R12 billion, which would be left on the shoulders of Seriti Resources.

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 would come from the same suppliers.

– gcinan@citizen.co.za

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