Eskom’s coal stockpiles deteriorate further



Eskom’s coal stockpile situation has deteriorated further, with five power stations having less than 10 days’ stock. Interventions to stabilise the coal supply may only have a positive impact by March next year. This means Eskom is entering the rainy season in Mpumalanga extremely exposed and that load shedding is a real risk, Eskom spokesperson Khulu Phasiwe says.

In the meantime, the power utility is using costly diesel plants to supplement the power generated by its coal-fired fleet. It is unlikely to recover this additional cost from tariffs and could see further deterioration of its finances due to this unplanned cost. In addition, Eskom got a bloody nose in the High Court in Johannesburg when it tried to force one of its former coal suppliers, which had cancelled its contract with Eskom, to continue supplying coal to its Majuba Power Station near Volksrust in Mpumalanga.

Fig. 1: Majuba Power Station.

Kuyasa Mining on Friday confirmed to Moneyweb that it stopped supplying about 140 000 tons of coal per month to Majuba – through its subsidiary Delmas Coal – late in October. In court papers Kuyasa, an emerging miner, accused Eskom of negotiating in bad faith about a sustainable tariff escalation model, and said the current rate of R12,34/GJ at which Eskom buys coal from the group is less than its cost of production. Kuyasa claims it has been subsidising its coal supply to Eskom by R12-million per month for the past year and that this is ruining the group financially. The payment terms were 30 days after receipt of Kuyasa’s invoice.

Arbitration

Kuyasa has offered to continue supplying Eskom until the matter has been settled in arbitration, but then Eskom must pay it R27/GJ on a cash-on-delivery basis. No date has been set for the arbitration. Eskom has rejected this offer and questions the economic hardship Kuyasa claims. An affidavit prepared for court by Petrus Mazibuko, an Eskom manager for primary energy, points out that Kuyasa paid its staff bonuses of R18 000 each in 2017/18. Kuyasa claims the payments were in fact for overtime.

Moneyweb earlier reported that Eskom paid its staff bonuses of R88 000 on average in July last year and accepted a wage agreement in August this year that included a R10 000 after-tax “settlement bonus” for every one of the more than 33 000 members of the bargaining unit, in addition to a wage increase way above the inflation rate. Mazibuko says in his affidavit that Eskom cannot afford to pay Kuyasa so much more for its coal and accuses Kuyasa of planning to export the coal at a higher price. Kuyasa rejects Eskom’s poverty claim and refers it to the R600-million coal prepayment it made earlier to a Gupta-owned mine.

In his affidavit Mazibuko discloses that Majuba’s reserve stock levels were at 9,3 days on 26 October, and that Eskom was diverting coal from other power stations to Majuba. The stock levels at these power stations were however also critically low, as he illustrated in Table 1. This is in contravention of the South African Grid Code, which requires Eskom to maintain stock levels at 20 days. Mazibuko also warned that should Kuyasa be allowed to cancel its coal supply contract because it wants a higher price, other suppliers will follow suit and export their coal, leaving Eskom without coal.

Table 1: Coal stock levels at some of Eskom’s power stations (days).
Power station September 2018 October 2018
Arnot 6,4 6,8
Hendrina 4,1 5,1
Komati 8 4,8
Matla 14,5 7,3
Tutuka 12,2 10,1

In August Eskom CEO Phakamani Hadebe disclosed to parliament that Eskom’s coal-fired power stations, excluding Medupi and Kusile, had coal stockpiles of on average 28 days, but that 10 of the 15 stations had less than ten days’ stock. Phasiwe told Moneyweb on Sunday that this has since deteriorated to 25 days on average, with eleven power stations now left with stockpiles of less than ten days. Of these, five have less than five days’ stock, he said.

New contracts

Of the twelve coal supply contracts that Hadebe told parliament were being negotiated, six have been signed and two of the six are already delivering coal, according to Phasiwe. Of the other four signed contracts, one will start delivering in December and the others early next year. Phasiwe says Eskom hopes to have to coal stock stabilised and back to the required levels by March next year. He adds that Eskom has engaged Transnet to transport coal from Medupi in Limpopo, where there is excess coal due to the late completion of the power station, to Kendall near Ogies in Mpumalanga.

He points out that Majuba also has a rail link and says some of the newly concluded contracts are for coal supply to Majuba. In Mpumalanga, where most of the coal mines feeding Eskom’s coal-fired power stations are situated, December, January and February are the rainy months. Phasiwe says Eskom is concerned that the low coal stock levels could leave it exposed if the mines are forced to stop production for a few days due to heavy rain. He says the power stations have however implemented additional coal treatment plans, such as compacting four to five days’ of coal stock to keep it dry for use in the event of continuous rains.

“All the mines have put in place treatment plans to ensure quick mine start-up after heavy rains,” he said. “These measures include adequate pumping capacity in the pits, adequate drainage at mines’ final product stockpiles, and continuous total moisture content analysis.” He says Eskom has requested all mines to operate throughout December and that they are finalising volunteer staffing plans to that end.

In the meantime, Eskom has embarked on another urgent coal purchasing process. It is waiting for alternative coal offers from its current suppliers and has identified suppliers it doesn’t currently deal with that have capacity to supply the Eskom power stations.

Acknowledgement

This article was first published by Moneyweb and is republished here with permission.

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