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Eskom's $4bn coal bill headache largely of its own making

Oct 07 2019 22:06
Paul Burkhardt, Bloomberg

South Africa wants coal producers to help debt-stricken state power utility Eskom tackle its skyrocketing costs of fuel - a problem that's largely of its own making.

Eskom traditionally signed so-called "cost-plus" contracts for coal with mining companies that managed and operated shafts the utility helped finance.

In 2015 then-CEO Brian Molefe criticised the model, saying the utility wanted to buy "the bread, not the entire bakery". Eskom increasingly began to enter into short-term supply agreements.

Eskom's coal costs have risen almost 22% since 2016 as a result of the shift and rising international prices driven by increasing demand from India and China.

The utility now concedes that it erred and says it has approved a long-term coal strategy "including the investment in cost-plus mines where required".

Meanwhile, the government wants coal producers to consider offering Eskom discounts on the more than 110 million tonnes a year of the fuel it burns.

With supplies constrained and continued demand for exports, they have little incentive to make concessions.

eskom  |  sa economy  |  energy
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