PUBLIC Enterprises Minister Malusi Gigaba says coal should be classified as a strategic resource, to protect Eskom from rising prices and deteriorating quality.

Coal is an important cost driver for the state-owned utility, which could pass on its high cost to consumers. The government wants Eskom to keep tariff increases at relatively low levels.

Mr Gigaba's comments reinvigorate the debate about the balance between coal exports and domestic use. Growing interest in SA's coal - especially from India - has affected the quality and cost of coal supplied to Eskom.

There has been a shift in the global market to buying lower-grade coal, which has traditionally been sold to Eskom.

Speaking at the presentation of Eskom's annual results in Cape Town yesterday, Mr Gigaba said: "I will be interacting with the industry to find an amicable solution. Coal should be classified as a strategic resource to support industrial output."

SA might consider various models to achieve this, including export quotas and legislating the quality of coal, he said.

Eskom said yesterday coal prices were the main driver of the 29,2% rise in its primary energy costs in the year to March.

Eskom CE Brian Dames said yesterday the cost of coal had risen 17,7% in the past financial year. He said Eskom had hoped for a single-digit increase.

Ian Hall, chairman of the South African Coal Road Map steering committee, said the government, Eskom and coal producers were discussing the need to strike a balance between domestic use and exports.

SA had sufficient coal reserves to meet domestic and export needs, Mr Hall said.

"It is also a good thing that the government is paying attention to the issue of infrastructure. If there was sufficient infrastructure to transport coal from the Waterberg area (in Limpopo) to Mpumalanga (where many of Eskom's power stations are ), this would not be an issue," he said.

In its report for the past financial year, Eskom said coal quality in Mpumalanga had deteriorated in recent years "because better quality coal has already been extracted, leaving behind only poor-quality deposits, and coal is now being mined in difficult geological areas".

Mr Dames said earlier this month Eskom's average coal stock was less than 42 days' supply, mainly due to the underperformance of mines supplying Arnot, Matla and Tutuka power stations between January and March.

njobenis@bdfm.co.za