Eskom, coal sector must collaborate to overcome challenges

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According to Mining News Pro -She stated, however, that, to date, the coal mining “industry has not made any guarantee that the cost of coal per ton would decrease as well”.

She said Eskom had realised that increasing tariffs was not going to be sustainable, because the utility was seeing a lot of “grid-defection".

Magubane noted that the biggest issue is cost cutting and that difficult decisions would need to be made in the near future.

In 2007, Eskom generated 218 000 TWh; by 2017, that had slipped to 214 000 TWh. Electricity costs increased from 18 c/kWh in 2007 to 83.6 c/kWh in 2017 . . . as you can see the increase in tariffs has nothing to do with the amount of electricity being sold,” Magubane noted.

Further, she noted that, in 2007, Eskom’s debt amounted to around R40-billion. By 2017, it had ballooned to about R300-billion. “Eskom cannot trade itself out of debt.”

XMP Consulting senior coal analyst Xavier Prevost, meanwhile, noted that he had conducted a study which demonstrated that coal prices were exponentially increasing.

He suggested that Eskom invest in coal mines to drive down the cost per ton, while also ensuring that massive reserves of coal are developed.

South32 COO Mike Fraser suggested that the situation lends itself to working out supply contracts that drive long-term growth.

He noted that while South32 is divesting from its South African Energy Coal business, it has worked to spin off the segment as an empowered and transformed standalone business.

Fraser and Magubane emphasised the importance of Eskom and the industry working collaboratively to overcome challenges.

Magubane, in particular, pointed to the energy transition that is under way, stressing that Eskom and the coal mining sector would be impacted the most. She noted the decommissioning coal-fired power stations is not enough, as questions around the towns that are reliant on coal mines and/or power stations need to be dealt with, as do questions on employment in those towns.

“The transition needs to begin with the end in mind.”

She suggests that the suppliers and Eskom need to implement a comprehensive plan to address the transition.