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Government ministers recently uncovered friction between Eskom and the Mining Charters’ stipulations regarding BEE requirements. Eskom insists that at very minimum, coal supplying companies like that of Waterberg Coal Company are absolutely required to oblige to their insistence of 50% BEE ownership, when the Charter has set a national standard of 26%. Worse still, Eskom is making these demands from a rather unstable platform. The power facility’s suppliers are looking further and further afield into exportation opportunities, with far lesser restrictions. Here’s an excellent piece on the subject by Laura Cornish, reproduced with permission from Miningreview.com – Caitlin Hogg
By Laura Cornish*
Recent statements by government Ministers have revealed a conflict between the Mining Charter’s requirement for a 26% BEE ownership, and the insistence of Eskom (effectively an arm of government) that all suppliers of coal must have in excess of 50% black ownership. This is despite Eskom’s difficulties in securing adequate and reliable coal supplies.
One of the mining development companies affected by this Eskom requirement is the Waterberg Coal Company. CEO Stephen Miller is well aware of Eskom’s requirement, and while Waterberg already has an almost 40% effective BEE ownership, Miller and company chairperson Dr Matthews Phosa have been addressing this issue for some time, and the company’s plans to increase BEE ownership to more than 50% are at an advanced stage.
Miller adds that Waterberg Coal continues to be in discussion on a coal supply agreement (CSA) with Eskom. He points out that the opening up of the Waterberg is a government priority in terms of its Strategic Integrated Projects policy; and that Transnet has already commenced a massive investment in upgrading and expanding the rail links to the area.
The past year’s share price of Waterberg Coal Company reflects the challenges it faces despite the appeal of its massive reserves.
While coal resources in the traditional mining areas are being rapidly depleted, the Waterberg has huge, largely untapped, coal resources, which in the economic interests of the country must be exploited. Asked to comment on the suggestion that coal is a “strategic mineral” and exports should be restricted, Miller responds that the Waterberg alone has coal resources that will last more than 100 years. While the supply to Eskom is a priority, coal exports are a significant earner of foreign currency, which is essential to help fund the development of the South African economy and increase employment opportunities.
Miller argues that this should also be a primary consideration in the choice of energy source for future electricity generation: coal is a local resource, the provision of which also creates local employment, while many alternative energy sources would have to be imported, with a consequent drain on foreign currency reserves.
Waterberg Coal has previously announced its own coal export project, which is now well advanced, and the company expects the first export shipments to take place in the third quarter of next year, steadily building up volumes to more than 4 Mtpa by 2020.
The profitability of this export project will be greatly enhanced by the supply of lower- grade coal, produced during the export coal mining process but not of export quality, to an IPP (Independent Power Producer). Waterberg Coal has itself made an application, in terms of the Department of Energy’s bid invitation process, to establish its own IPP with an initial 600 MW capacity, but with plans to substantially increase this capacity.
Waterberg Coal’s IPP appears to be the only one announced to date which controls its own source of feedstock coal, and in developing this new segment of its business Waterberg is likely to now be rated as an energy company, rather than a coal mining enterprise.
Both the mine itself and the IPP will be large users of water, and one of the main restraining factors in developing the Waterberg region has been the water shortage in that area. However, the Waterberg Coal Company has recently concluded an agreement with the Municipality of Lephalale, the largest town in the Waterberg area, to take over and run the municipality’s waste-water treatment plant, in return for being able to utilise the 10 million litres a day of waste water that plant currently produces. This, together with the considerable volumes of water available from boreholes on Waterberg Coal’s own properties, will be sufficient to meet the requirements of both the export project and the IPP.
However, as back-up the Waterberg Coal project made an application for an allocation of water from the huge R15 billion government backed water schemes, known as MCWAP 1 and 2 (Mokolo Crocodile River Water Augmentation Project), whose massive pipelines will run along the southern boundary of Waterberg Coal’s properties.
Limpopo Province desperately needs more employment opportunities, and the opening up of the Waterberg, with all the ancillary services that will require, will greatly increase those opportunities, and increase the ability of the province and local municipalities to meet their service delivery targets.
* This article first appeared in Miningreview.com and is republished with its kind permission.
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