The Competition Commission has recommended that the Competition Tribunal approve the proposed transaction whereby Thabong Coal, a subsidiary of Seriti Resources, intends to acquire South32 South Africa Coal Holdings (SAEC) with conditions.

The commission has determined that, post-merger, Seriti will be the largest coal supplier to power utility Eskom, with a market share upwards of 30%.

Although the proposed transaction is expected to lead to an increase in concentration in coal supply to Eskom, the merger is unlikely to impact on Eskom’s existing bargaining and buyer power position given the individualised nature of negotiations of the long-term contracts, the commission states.

Both Seriti and SAEC have long-term supply contracts with State-owned power utility Eskom.

Seriti supplies thermal coal to Eskom through three mines − New Vaal, New Denmark and Kriel – through which it supplies Eskom’s Tutuka, Lethabo and Kriel power stations.

SAEC owns and operates four thermal coal mines − Khuthala, Ifalethu, Klipspruit and Wolvekrans. It supplies the Duvha and Kendal power stations through the Khuthala and Ifalethu mines. The Klipspruit and Wolvekrans mines primarily produce export coal.

SAEC also sells thermal coal to other domestic customers.

Seriti has an upcoming mining project, namely the New Largo coal mine, which is intended to supply coal to Eskom's Kusile power station through a long-term agreement, which is currently under negotiation. SAEC also has a number of projects in development including Pegasus, Leandra and Naudesbank, besides others.

Seriti has welcomes the commission's recommendation.

“Seriti remains committed to sustaining and supporting Eskom’s ongoing coal supply needs,” it comments.

The commission has found that, despite the structural change from the merger, Seriti’s newfound position is unlikely to directly dovetail into greater leverage power for the merged entity during contract renegotiations and is, therefore, unlikely to have a significant effect on the price of coal to Eskom.

The commission also found that, as a result of the symbiotic relationship between Eskom and cost-plus contract holders, and the limited outside options of the merged parties’ mines, both parties are equally reliant on establishing mutual agreement with respect to the continuation of cost-plus contracts going forward.

However, the commission has expressed concern that the proposed transaction may facilitate the exchange of commercially sensitive information between SAEC and the coal mining companies in which the shareholders of Seriti hold interests.

It also identified some public interest concerns that relate to job losses, the impact on junior miners and the community trust to be established for the benefit of the communities that are adjacent to the operational mines of SAEC and/or any of its subsidiaries.

To remedy the various issues arising, the commission notes that the merging parties have agreed to four conditions, including that the merged entity will put measures in place to ensure there is no flow of commercially sensitive information between the Seriti shareholders’ affiliated coal mining companies and SAEC. 

It will also commit to a cap (in relation to merger-specific retrenchments) of a maximum of 25 skilled employees for a period of two years, and commits to a timeline of nine months for the identification and selection of the beneficiaries of the community trust that will own a stake in SAEC.

Lastly, the merged entity will undertake to assist junior miners to participate in the coal production sector by divesting an SAEC coal mining project that has not yet been developed.