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South Africa Seeks Coal Price Cuts to Avert Eskom Collapse

Bloomberg logoBloomberg 10/3/2019 Felix Njini and Paul Burkhardt
© Getty

(Bloomberg) -- South Africa is pushing coal producers to cut prices to help save Eskom Holdings SOC Ltd., the debt-stricken power utility that threatens to unravel the country’s finances.

“At these prices of electricity, this economy is going to collapse,” Mineral and Energy Resources Minister Gwede Mantashe said Thursday at a mining conference in Johannesburg. “You have got to reduce the prices -- what we are saying is coal producers must contribute in ensuring that is actually addressed.”

President Cyril Ramaphosa’s government is searching for ways to resolve a deepening financial crisis at a monopoly that’s seen as the biggest threat to the country’s budget and economy. Extracting concessions from coal producers is the latest attempt to cut costs after labor unions repeatedly rejected reducing the company’s bloated workforce.

Eskom, which provides about 95% of South Africa’s electricity, relies on coal to generate most of its power. Several ministries last week approached both coal and renewable-energy producers to ask for lower-cost supplies.

“We are talking to them, we are not instructing them,” Mantashe said. “The steps are, one you talk to coal producers, they make a commitment, talk to renewables, they make a commitment.”

Coal producers plan more talks with the government over the supply and cost of the fuel, according to the Minerals Council South Africa, the country’s mining lobby.

“Careful consideration is being given to being mindful of competition regulation,” it said in a statement.

a screenshot of a cell phone: South African export coal prices have already dropped© Bloomberg South African export coal prices have already dropped

Miners charge Eskom a wide range of prices for coal in contracts varying in length. The cost of the fuel at South Africa’s Richards Bay port, from where some producers export, has dropped 32% over the past year, putting additional pressure on the companies.

Seriti Resources Holdings Ltd., which is in talks to buy the South African coal assets of South32 Ltd., has taken part in the talks with the government.

“It’s in all of our interests to get Eskom back on its feet,” the company said in a statement, without saying whether it would lower prices.

Eskom’s primary energy costs rose 17% in its most recent financial year, due to higher coal charges and increased production from independent power producers. The utility has burned over 100 million tons of coal annually for at least a decade.

The utility is seeking to renegotiate unfavorable contracts with the so-called IPPs, said Eskom Chairman and acting Chief Executive Officer Jabu Mabuza. The company is also holding talks with creditors, he said, without saying what Eskom was asking for.

“The funders are being engaged on an ongoing basis and I wouldn’t want to preempt that,” Mabuza said. “Everybody has to contribute in finding the solutions. I wouldn’t want to be picking on anyone but am just saying in the entire value chain.”

(Suggested: News in pictures)

In this photo released by the official website of the office of the Iranian Presidency, Iranian President Hassan Rouhani, right, and Pakistani Prime Minister Imran Khan give a joint press conference at the Saadabad Palace, in Tehran, Iran, Sunday, Oct. 13, 2019. (Office of the Iranian Presidency via AP)

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