Citizen Reporter
3 minute read
11 Oct 2019
12:14 pm

Eskom is overspending on coal by R4.5m per day – report

Citizen Reporter

Had the power utility negotiated to pay prices closer to Nersa's recommended rate, they could have saved up to R10 billion over the next six years.

Coal. Image: Twitter/@ESIAfrica

Eskom could have saved about R10 billion over the next six years on what it spends on coal had it negotiated a better deal with its suppliers.

This is according to a recent article in the Mail & Guardian which states that Eskom has contracted 16 coal-producing companies to provide it with more than 70-million tonnes of coal in the next six years for the hefty price tag of R38 billion.

R10 billion over the next six years works out to a saving of about R4.5 million per day.

When contacted by the publication, the power utility denied being unable to negotiate a better deal and attributed the coal’s high price tag to a rapid decline of coal stock.

With Eskom having lost R21 billion in the last financial year, the high price Eskom pays for coal has long been a contentious issue. As such, it has prompted Cyril Ramaphosa, Mineral and Energy Resources Minister Gwede Mantashe, Public Enterprises Minister Pravin Gordhan, and Trade and Industry Minister Ebrahim Patel to both comment and intervene.

Mail & Guardian reports that last month, Mantashe, Gordhan, and Patel were locked in “emergency talks” with suppliers to address the high prices.

“At these prices of electricity, this economy is going to collapse. You have got to reduce the prices — what we are saying is coal producers must contribute in ensuring that it is actually addressed,” said Mantashe during a public address last week.

Ramaphosa also spoke about it during Thursday’s question and answer session in the National Council of Provinces.

Despite the pricing guidelines stipulated by the National Energy Regulator of South Africa (Nersa), some suppliers are charging Eskom up to double the recommended selling price for coal. That price deficit is what will see the power utility lose out on an extra R10 billion over the next six years.

“Four of the most expensive prices, per tonne, are part of Glencore contracts. The most expensive coal is R980 per tonne and, although this has a higher quality rating, it is still more expensive than similarly rated coal from other firms,” reports the publication.

According to Nersa, the recommended price for coal should be R350 per tonne delivered.

Glencore spokesperson Shivani Chetram brushed this off as standard practice.

“Glencore’s contracts are negotiated on an arms-length basis and are based on market prices and conditions at the time of negotiation,” said Chetram.

Eskom also explained away the price discrepancy by painting it as a necessary risk.

“The notion that Eskom has failed to negotiate proper coal contracts, across the board, is misleading … For example, in instances where suppliers are unwilling to divulge their costs, and where there is an immediate need for coal to cover the shortfall, the option of either reducing the burn with the risk of load-shedding needs to be weighed up against paying the higher prices for a shorter duration to alleviate this risk,” said Eskom in a statement to the publication.

(Compiled by Kaunda Selisho.)

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