Chamber of Mines CEO Bheki Sibiya. Picture: SUNDAY TIMES
Bheki Sibiya. Picture: SUNDAY TIMES

ESKOM’s plan to transform the coal mining industry, in a bid to secure ample coal supply, must ensure that small-scale mines are sustainable, Chamber of Mines CEO Bheki Sibiya says.

The state-owned power utility recently called for a pact with coal miners to limit their annual price increases, a suggestion miners rejected as they are also negatively affected by the high cost of electricity.

On Monday, Eskom announced new plans to expand its coal supply base and cut its reliance on larger producers.

In conjunction with the Department of Public Enterprises, Eskom is finalising a strategy that includes establishing a fund to support the development of new coal mining operations. It said it wants to increase black ownership and participation in coal mining and use coal trading to secure resources and enhance transformation.

Eskom has offtake agreements that run until 2018, and has been working for the past few years on developing a long-term coal supply strategy for all its power stations, which include the yet-to-be-commissioned Medupi power station in Limpopo, and the Kusile power station in Mpumalanga.

Eskom’s power stations consume about 130-million tons of thermal coal out of the 250-million tons produced in South Africa, the bulk of which is sourced from the four major producers, Exxaro, BHPBilliton South Africa, Xstrata Coal South Africa and Anglo American Thermal Coal.

"We seek to transform South Africa’s coal mining industry at the same time as we ensure a secure supply of coal for domestic power supply," Public Enterprises Minister Malusi Gigaba said on Monday.

Mr Sibiya responded that he had not seen detailed plans from Eskom on how it intends to accomplish some of the initiatives without disadvantaging junior miners.

"Our view is that Eskom needs to come up with a model, away from its current cost-plus-2% model, which will balance exports against the supplying power stations," he said.

He believes Eskom has historical agreements with some miners to acquire coal at 2% above the cost of production. The utility does not disclose its contracts with miners.

Mr Sibiya said junior and emerging coal miners were mostly operating marginal mines and faced high production costs.

Eskom said recently that it paid R28bn annually for the procurement of coal — of which 4.7% was spent on black, emerging miners.

The coal industry in South Africa is highly concentrated, with a handful of companies producing about 80% of saleable coal.

The Department of Public Enterprises and Eskom are seeking a framework that will balance the need for domestic security of coal supply with the need for a thriving coal export industry.

"This will require significant investment in coal mining, and Eskom is committed to ensuring this is accompanied by transformation of the industry," Mr Gigaba said. Suppliers of inputs such as limestone will also be needed, he said.

Eskom CEO Brian Dames said: "We have looked at our need for coal … and we want to see how we can ensure at the same time that we see fundamental transformation of the industry and assist the development of emerging coal miners."

There are about 30 black economic empowerment mines in South Africa, as defined by the 26% ownership stipulated in the Mining Charter.

Mr Dames said that if it was measured in terms of the 50%-plus-one-share black ownership as defined by the broad-based black economic empowerment codes, the percentage of black ownership dropped significantly.