Eskom's long-term coal strategy

Wednesday, 2 February 2011: Eskom has made significant progress implementing the coal supply strategy it has put in place over the past three years and it is looking at options to ensure security of supply for its power stations over the long term.

Current coal stockpiles are at an average of more than 40 days and approximately 95% of Eskom's requirements to 2018 have been contracted or committed, Eskom's Chief Commercial Officer Dan Marokane told a coal conference in Cape Town today. Rail volumes have been increased and quality management practices and contractual provisions have been improved.

However, Eskom faces substantial challenges to secure the long term coal supplies it requires for its existing and new power stations. "We have choices to make as a country if we are to find the optimal balance between coal exports and domestic energy security," said Mr Marokane. "We are concerned that the market on its own may not ensure that balance."

Eskom has a plan that sources most of the coal it requires for its existing power stations from Mpumalanga. However, Mpumalanga does not have sufficient coal to supply Eskom under a 60 year life of station scenario and risks to coal supply have increased because of delays in developing major new long term sources. In addition, strong demand for coal exports, including for those grades of coal which in the past were used only by Eskom, has put upward pressure on domestic coal prices.

"Our concern is that these risks will raise the cost of coal and so lead to increases in the cost of electricity that would have a negative impact on South Africa's economy come," Mr Marokane said.

"We want the export coal industry to thrive, but we must at the same time ensure that South Africa has the coal it needs to ensure that we can keep the lights on in the long term, at a cost that the country can afford," Mr Marokane said.

Eskom is proposing that South Africa's coal resources are developed and exploited in the national interest. A key element would be a national primary energy coal development plan that would provide a framework for investment in the industry. Eskom also proposes that mechanisms should be put in place to ensure domestic energy needs are met, at prices based on efficient costs with fair returns for coal producers. Eskom will engage on this proposal with government, through its shareholder ministry.

"Coal is going to remain a significant proportion of South Africa's energy mix for a long time to come. We want to work in partnership with the industry and our stakeholders to secure the country's future requirements in a way that supports growth and development," Mr Marokane said.

Statement issued by Eskom, February 2 2011

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