Malusi Gigaba. Picture: SUNDAY TIMES
Malusi Gigaba. Picture: SUNDAY TIMES

PLANS by Public Enterprises Minister Malusi Gigaba to establish a "black emerging miners’" fund is raising eyebrows within the coal industry as to how the fund, with Eskom already a prime customer for domestic coal, will help sustain the sector.

Preference and pricing on the off-take agreements between the established and the emerging miners is one of the concerns that arise.

While support for emerging miners is lauded, the establishment of the fund in the proposed form poses legislative and oversight challenges between the ministries of mining, energy and public enterprises.

In his budget vote in Parliament earlier this month, Mr Gigaba revealed plans to establish a fund for emerging coal miners, under the administration of Eskom, that will not only ensure security of supply for the state utility operator, but also fast-track industry transformation.

He said the goal was to set up the emerging miners’ fund by the end of the 2013-14 financial year, with the aim of ensuring that 50% of the thermal coal delivered to Eskom is obtained from black-owned mining companies come 2018.

This, however, has caused concern among industry players regarding the legislative quagmire that the initiative might create for the coal miners, who currently fall under the legislation of the Department of Mineral Resources.

"The Department of Public Enterprises is working closely with the Department of Mineral Resources in relation to ensuring that there is sufficient coal for local use, especially by Eskom which accounts for the biggest coal use by a single company," a spokesman for Mr Gigaba told Business Day.

Eskom is South Africa’s biggest coal consumer, using 130-million tons of the 240-million tons mined last year for its 13 power stations. So far, it has renewed the bulk of the off-take agreements with industry until 2018. To meet its future needs, the state utility operator said its power stations will need 2-billion tons of thermal coal for the next 40 years, which translates to an average of 50-million tons of additional coal it will need for each year from 2018.

"At this stage, the chamber has not been engaged officially regarding this initiative, but we are willing to engage with the minister to ensure that deserving black economically empowerment entities received all the necessary support," Vusi Mabena, head for transformation at the Chamber of Mines, said.

Despite advancements into renewable energy, as well as the push by Energy Minister Dipuo Peters for the introduction of nuclear energy, coal is set to serve as an integral source for Eskom’s power generating capabilities in the coming decades.

With the quality of coal suitable for the power stations diminishing in the Highveld, further investments in the development of mining infrastructure in the coal-rich Waterberg region of Limpopo is seen as a catalyst to realise great value from the energy resource.

Although the proposal to assist emerging miners has been lauded, leading coal analyst Xavier Prevost described Eskom’s strategy — aided by the Department of Public Enterprises — as an "ambitious attempt" that could backfire. "The strategy has been tried before … it just doesn’t work," he said.

Apart from the expertise that the junior miners sorely need, Mr Prevost added that the fund would need to be administered by an entity independent of Eskom, major mining companies and the government, in order to be successful.

One industry insider said Eskom’s procurement plan — backed by the department of enterprises — to source coal from miners that have majority black ownership, added an extra layer that contradicted the mining charter, which requires that mines have 26% black ownership by next year.

The industry is also waiting for clarity in the role the government will play through its state-owned mining company. The Department of Mineral Resources is finalising a "coal road map" to indicate the extent of the country’s wealth in mineral resources and inform government and industry strategies on the commercialisation of the resource.