HomeNewsWorld Bank criticized for supporting SA coal future

World Bank criticized for supporting SA coal future

Coal_RESIZEDBy George Marais, industry analyst at Coface, the international credit insurer.

South Africa – Environmentalists in South Africa and abroad have criticised the decision of the World Bank‘s approval for a $3.75 billion loan to build the world’s 4th largest coal-fired power in South Africa. The plant will increase the demand for coal mining and production.

Protesters are urging the bank to stop supporting the development of coal plants and other large emitters of greenhouse gas and polluting operations from coal mining. Eskom is the biggest producer of carbon emissions in South Africa, producing 228 million tons last year. South Africa’s coal mining industry is the latest to face potential strikes that threaten to derail production plans at some of the country’s biggest collieries.


South African’s ruling party, the African National Congress (ANC), concluded at its national conference in December 2012 that state intervention in selected mineral industries was required in order to accelerate the industrialisation of the country. Expect, then, the possibility of tax on coal exports which would secure coal for Eskom as it seeks to power downstream businesses. State intervention may even extend to partial nationalisation of some assets, although the ANC seems to have excluded wholesale nationalisation out of its dictionary.

Botswana is hoping to commission at least 300 MW of power this year but has plans to install at least 900 MW more between now and 2020 as it cedes participation in the export coal markets – owing to a stalled rail expansion – in favour of becoming sub-Saharan Africa’s power hub.


It is well known that South Africa exports its best coals and burns the poorer ones in power stations specifically designed to handle these coals’ lower calorific values and their higher ash contents. But export demand for those lower-quality coals seems set to increase as India builds new and efficient thermal power stations along its western coastline.

This increase in demand for lower grades of coal is coming at a time when an additional 24 million tons of combined annual capacity is being added to the Richards Bay and Matola coal terminals.

This means Eskom may no longer be the only buyer of South African coal that currently falls short of the quality generally demanded by export customers. In the past, coal producers wanting to sell to Eskom have been tied into long-term contracts that, at best, offer steady but unexciting profits. That supposedly accounts for some 80% of Eskom’s consumption – the remaining 20% is bought on the spot market and at spot market prices.

But as Indian import demand grows and as import prices for lower-grade coals start responding to the higher prices of oil and export coal, Eskom could well be faced with paying market-determined export prices for its spot coal purchases.

Another factor that might potentially affect Eskom is the possibility that collieries supplying the inland and export markets might decide to take advantage of the Richards Bay Coal Terminal expansion and wash their coals to produce export-quality products. The implication of this is that the remaining coal they would make available to Eskom could be of a significantly lower grade than at present, causing Eskom to have to burn greater tonnages.

This, in its turn, could give better sales opportunities to collieries that focus on South Africa’s inland market. South Africa ranks sixth as a hard coal exporter, behind the USA, Australia, Indonesia, Russia and now also Colombia.