A new coal supply agreement for the Arnot power station, following Eskom’s tendering process, will be completed in March 2016. This is following the utility’s inability to renew its supply agreement contract with Exxaro on 31 December 2015.
Eskom and Exxaro Resources had a 40-year contract for the supply of coal to Arnot mine that ended on 31 December 2015. According to Eskom, it was unable to renew the cost-plus contract due to the exorbitant coal price as well as the mine supplying below the contractual requirement.
Eskom says it has been proactively engaging with Exxaro on improving its performance, however these efforts were unsuccessful. As such, the contract was allowed to expire as it was financially imprudent for Eskom to continue to purchase coal at their cost levels.
“In order to ensure business continuity of Arnot power station, Eskom has responsibly sourced coal from seven interim suppliers. These interim suppliers will ensure security of coal supply pending the conclusion of the long-term contract,” says Eskom’s Group Executive for Generation, Matshela Koko.
Optimum Coal controversy
“One of these suppliers is Optimum who has provided less than 15% of the coal delivered to Arnot in January. All interim suppliers deliver coal significantly below the previous Exxaro price – further demonstrating the correctness of Eskom’s decision to seek a new supplier.”
“Eskom is in no way involved with transactions relating to the ownership of coal mines and is solely focused on procuring coal of the required quality to Eskom’s power stations, at the right time and at optimal cost. The company categorically states that it is moving away from ‘owning the bakery’ to just ‘buying the bread’. Eskom will therefore create market tension through an open and competitive enquiry process to source coal from any suitable supplier.”
He says Eskom is dismayed by accusations regarding any purchase of coal from Optimum due to an ownership change to the Gupta’s Tegeta coal focused company. Eskom further notes that there was no outcry when Eskom previously bought coal from Optimum when it was owned by Glencore nor were there any complaints on the ownership of any other coal supplier.
“These double-standards are unfair and Eskom is unapologetic about engaging with any supplier irrespective of ownership. As such, Eskom will fulfil its mandate and assess suppliers only on their ability to provide coal on negotiated terms and conditions irrespective of any perceived political connections,” – Koko