Johannesburg - The government is considering declaring coal
a strategic resource, Public Enterprises Minister Malusi Gigaba said on
"We are engaged in discussions with the ministers of
mineral resources and energy to secure the security of supply (of coal),"
he said at Eskom's annual results in Cape Town, shown to media in Johannesburg
via video link.
"We need the right volumes and the right quality of
coal, at the right prices."
Eskom had traditionally bought low-grade coal for its power
stations from suppliers, leaving high-quality coal to the export market.
However, demand from Asian countries, particularly India,
had increased in recent years. This had pushed prices up, affecting Eskom's
In the year to March 2012, Eskom had seen coal prices
increasing by 17%, the results showed.
In addition, to sustain the increased load on its power
stations a higher grade of coal was needed.
South Africa, as a coal-intensive economy, needed to respond
to this challenge. Quotas could be implemented, prescribing the quantity and
quality of coal which could be available for domestic use.
"Electricity is regulated, but coal is not," he
said. "Our top priority is the security of supply for South Africa."
Eskom CEO Brian Dames agreed.
"Coal is our biggest input cost, and filters directly
into the tariff," he said.
"Our expectation for the following year is
that coal goes up by a single digit. It is very important that we achieve
Financial director Paul O'Flaherty said Eskom had been
forced to buy coal at an additional cost from other mines as the quality of
coal offered by its suppliers deteriorated.
"We will have to address this with the mining
industry," he said.
Despite the increased coal price, Eskom nevertheless
declared a 60% increase in net profit for the year. Net profit was R13.2bn,
from R8.4bn for the previous year.
This was only slightly above the R12.8bn reported for the
first half of its financial year to September.
Most of Eskom's profit is earned in the winter months, in
the first half of its year. This is when tariffs for large customers are higher
and maintenance costs are lower.
Gigaba said the results were pleasing.
"Eskom must continue to improve its financial health so
that it can invest to support economic growth and job creation and improve the
quality of life," he said.
But he warned even more difficulties lay ahead for the
utility, as the capital expansion programme still had to be completed.
There were significant achievements during the year under
review - Eskom's third year of "healthy" financial performance.
Over 70% of the funding had been secured for the R340bn
programme by the end of March.
There had been no load-shedding since April 2008, and Eskom
had exceeded the targets government had set.
The government, as the shareholder, had waived its dividend
to allow the surplus to be reinvested in Eskom's build programme, said Gigaba.
This had enabled electricity tariff increases to be reduced from 25% to 16%,
putting R8bn back in the economy.
Dames said electricity from independent power producers
(IPPs) was bought by Eskom for more than it could sell electricity to the
Power from IPPs cost 70 cents per kilowatt hour, but Eskom
sold electricity at 50 cents per kilowatt hour.
"Electricity prices are still not cost-reflective in
South Africa," he said, as this was the cheapest alternative power supply
available to the utility.
"We need IPPs in the system. The choice we have to make
is how much to introduce."
Eskom had made safety a top priority at the company, after
25 fatalities were recorded in the year. These were mainly due to vehicle
accidents and electrical incidents, he said.
O'Flaherty said two previously mothballed stations, Camden
and Grootvlei, had been returned to service. The commissioning of a third
station, Komati, was two-thirds complete.
A total of 5.8 GW of new generating capacity, 3 899km of
high voltage transmission lines, and 20 195 MVA of new transformer capacity had
been installed since 2005. Construction of the two new coal-fired power
stations Medupi and Kusile was continuing.
Together with a pump storage scheme, Ingula, and new
transmission infrastructure, these would add 17 GW to the grid in 2019.
"We are doing everything in our power to make sure we
bring (the new capacity) online and within budget," he said.
"We are making sure that we can bring some of that
The Democratic Alliance condemned Eskom's increase in
"This is almost entirely due to the massive tariff
increases that South Africans have had to endure in the recent past," said
spokesperson Natasha Michaels.
"An additional tariff increase for next year cannot be