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Issue link: https://coal.epubxp.com/i/123548
south african coal continued South African Coal Production Shortfall at Zero Mining Production Growth Rate Eskom uses about 60% of South Africa's production and will have to see new mines open if it is to keep up with its own requirements (Source: Eskom) Secunda complex of coal-to-liquids plants. Sasol is now the second-largest domestic consumer of South Africa's production, but also exports some of its production through Richards Bay. Sasol had planned an 80‚000 barrels per day coal-to-liquids plant in Limpopo Province in the north, but dropped the idea in 2010. However, it recently indicated it is once again looking at coal mines in the area, to supply other users, possibly Eskom. BHP Billiton Energy Coal South Africa is South Africa's fourth-biggest coal producer and holds a 37.43% stake in the Richards Bay Coal Terminal, making it the largest single shareholder. Billiton produces energy coal for the South African domestic and export markets. It has four primary coalmining operations, Khutala Colliery, Klipspruit Colliery, Middelburg Colliery and Wolvekrans Colliery, as well as four processing plants. Its operations are located near the towns of Malahleni and Middelburg in the coalfields of Mpumalanga Province. Xstrata is the world's largest producer and exporter of thermal coals and like Billiton, has a global footprint. The company is in the process of a $2-billion development of four projects that includes the Goedgevonden expansion and optimization of Tweefontein and Actom East. Coal Plays a Big Role in RSA Coal is now South Africa's third-largest export earner, close behind platinum and gold. Even so, the country is a major consumer of its own product. Coal-fired power stations deliver around 94% of South Africa's 60 www.coalage.com electricity. This makes it one of the most coal-dependent countries in the world, and also one of the heaviest emitters. In recent years, Eskom's ability to generate power has fallen behind demand. The country's margin is now razor-thin, at 1%, against an international benchmark of 15%. Rolling blackouts that hit the country between 2006-2008 were at least partly blamed on inadequate coal stockpiles. In early March 2008, stockpiles at Eskom's 12 coal-fired plants dropped as low as a 5.4-day supply. But most problematic has been a lack of generation investment as the government dithered over whether to break up the utility and sell it off, or keep it as a state-owned monopoly. Pressure from unions, statist-oriented government officials and, not least from Eskom itself, saw the monopoly model prevail. Eskom is now going full bore to upgrade aging infrastructure and build new power plants and although it has included renewables, hydro and nuclear in its long term plans, coal is still center stage. South Africa's coal producers face the same electricity constraints that are putting the squeeze on mines nationwide, and indeed, the entire country itself. They also have the additional pressure of having to keep Eskom supplied, fending off sporadic attacks from government officials accusing them of favoring international buyers over local interests. At this point Eskom's margin of spare capacity is hovering around 1%, dangerously below the international benchmark of 15%. Power cuts seem all but certain in the coming Southern Hemisphere winter months, when demand traditionally goes up. Billiton has the additional problem of being the bad guy of the moment; its secret deal signed in 1992 with Eskom gives it access to electricity for its two aluminum smelters at a generously preferential rate. Given the sorry position in which Eskom finds itself, it's not surprising that the private sector is eager to step in. However, legislation allowing independent power providers has yet to be introduced, much to the frustration of the country's business community. "We've spoken to coal mines in the Waterberg—we are in the queue," said Kishore Kumar, CEO of Vedanta Zinc International, while on a recent visit to South Africa. Vedanta has several zinc smelters in the country but Kumar warned they could soon become unviable because of rising electricity costs, as well as uncertain supply. Vedanta operates power stations of its own in India, and is eager to do the same in South Africa, sourcing coal from within the country to supply them. "We see it as beneficiation. If we can produce electricity from coal here in South Africa, we are contributing directly to the local economy. There's no need to simply export coal when the value can be realized right here. But we need government clarity on this before we can do anything," said Kumar. For coal producers, Eskom's state-protected dominance presents a two-fold problem. Production is curtailed because Eskom does not yet have enough plant capacity to meet the country's electricity needs. At the same time, Eskom is pressuring them to curb prices. Coal is the largest single cost item in Eskom's books—making up R328-billion ($36 billion) of its five-year projection from 2013 to 2018. Its CEO, Brian Danes, met with the four largest coal producers earlier this year and called for a "pact"—in effect a voluntary price limit. Eskom also wants coal to be declared a strategic resource. If this happened, the government would have the authority to limit exports and force local producers to favor Eskom over foreign clients. "Eskom uses about 60% of South Africa's production. It wants to have more coal-fired energy, but the government and the energy regulator Nersa (National Energy Regulator South Africa) wants more nuclear and renewables," Prevost said. "Coal provides around 93% of South April 2013