If South Africa is to keep the cogs of industry turning and ensure post COVID-19 economic recovery as well as future economic development and growth, the country will have to continue relying on coal for primary energy generation as it remains the country’s lowest cost, baseload source of energy, mining investment firm Menar MD VUSLAT BAYOĞLU tells CHANTELLE KOTZE.
Despite the global trend by developed nations towards a low-carbon future underpinned by the development of green economies, the economic significance of coal mining in developing countries, such as South Africa, is clear when considering the total contribution of coal producers in terms of job creation, local economic development and local procurement opportunities.
In the absence of alternative cost-effective and reliable sources of baseload power, such as gas or nuclear energy, and until a cost-effective means to store renewable energy becomes available, baseload coal-generated power remains the only effective means for the country to keep the lights on, explains Bayoğlu.
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Until such a time as renewable energy is able to provide stable baseload power, Bayoğlu says that South Africa should focus its efforts on finding ways to produce cleaner energy from coal. He therefore stresses the need that a ‘just transition’ to cleaner energy generation also includes coal and the use of clean coal technologies to mitigate the environmental impact of burning coal for energy.
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Because South Africa cannot afford to simply shelve its coal-fired power stations and invest in the development of infrastructure necessary to import gas or to construct nuclear power stations, Bayoğlu calls on the government to consider a policy position that promotes research and development into clean coal technologies. “This would enable South Africa to benefit from its rich coal endowment in an environmentally sustainable way,” he notes.
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Of concern at the moment is the effect that COVID-19 has had on junior coal mining companies in South Africa – the next-generation of project developers – which collapsed the domestic coal market as State-owned power utility Eskom generated less electricity, decreasing its demand for coal. The junior coal miners that survived this are faced with another hurdle – the inability to raise funds – with many banks unwilling to fund coal projects on the back of tighter global emission standards.
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This is of great concern to Bayoğlu as exploration and the discovery of new ore bodies, not only coal, but other commodities too, is crucial to ensure the sustainability of the South African mining industry and the development of the country’s economy.
Despite the decrease in coal consumption by Eskom due to COVID-19, demand has already begun to rebound on the back of increased economic activity, says Bayoğlu. The domestic demand for coal by Eskom should soon stabilise to 2018/19 levels he notes, while export demand is also expected to experience a healthy increase post-COVID on the back of the global vaccine rollouts and increased demand for South African coal from China, resulting from China’s ban on imports of Australian coal.
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Going forward, there is a fine balance that needs to be met to ensure that South Africa is able to produce the electricity it needs, according to Bayoğlu.
“A steady supply of coal to meet the demand from South Africa’s coal-fired power stations is critical to ensure that coal prices remain steady and cost competitive for Eskom to continue generating low-cost energy to stimulate economic activity and create jobs. Bayoğlu therefore urges his fellow coal suppliers to ensure that Eskom has reasonable options to purchase coal at the right price to support economic growth. “Without cost-effective electricity, economic recovery – and by extension job creation – will be impossible,” he highlights.
As South Africa begins its road to economic recovery from the COVID-19 pandemic, with mining as a catalyst to accelerated industrialisation, innovation and job creation, Menar is very optimistic about the future of its business as a low-cost coal miner.
This year the company aims to begin development of two mines – the De Wittekrans export coal project near Hendrina in Mpumalanga and the Bekezela colliery near Springs in Gauteng. De Wittekrans will see Menar invest about R600 million in a Phase 1 development and create 430 jobs, while Bekezela colliery will cost around R1.5 billion to develop and create 800 jobs. These mines are being developed with the intent, in part, to provide Eskom with options to procure the right quality coal at a lower price – a major element in supporting Eskom’s turnaround strategy to reduce its costs.