JOHANNESBURG (miningweekly.com) – State power utility Eskom indicated on Wednesday that it was in discussions with Exxaro regarding its contractual coal-supply obligations in light of an anticipated six-month delay to the start up of the first unit, or Unit 6, at the coal-fired power station.

The unit was expected to deliver first power to the grid only in May 2013, instead of by the end of 2012 as had initially been anticipated.

However, Eskom also indicated that meeting the May deadline would depend materially on the ability of boiler supplier Hitachi to achieve the remedial targets that had been set. Commitments in this regard had been secured from the group’s local unit, as well as from Hitachi Power Europe and the Japanese holding company.

It is understood that Eskom’s current “worst-case scenario” for delivering initial power to the grid from Unit 6 was September 2013. But there was also some concern that delays to Unit 6, might also result in delays to the delivery of the subsequent five 800-MW units that make up the R100-billion project.

Speaking at the group’s interim results presentation, CEO Brian Dames indicated that other contractual arrangements arising from the delay had to be addressed, referring specifically to the coal-supply contract with Exxaro.

“We are engaging with our coal supplier as to how far they are in terms of the supply contract we have with them and we will start processes as far as that is concerned,” Dames said.

It is understood that Eskom could faced material commercial risks should the delay become protracted, owing to the fact that it had reportedly concluded a take-or-pay coal-supply contract with Exxaro’s Grootegeluk mine.

However, Dames stressed that the delay was unlikely to undermine security of supply, owing mainly to the far lower-than-forecast growth in volumes of 0.9% for the interim period. Demand growth was also anticipated to remain subdued in the second half, as well as during 2012, due to a slowdown in South Africa’s economic recovery.

The introduction of the first unit at Medupi in 2013 was also in line with the schedule outlined in the Integrated Resource Plan 2010-2030, but Dames acknowledged that it would have been preferable to have had the power flowing earlier in light of the "tight" supply/demand balance that was leaving little room for much-needed maintenance.

The utility was also working on a range of other initiatives to secure coal supply for its other facilities beyond 2018, as well as to moderate the rate of coal-related cost increases.

During the six months to the end of September, the group’s primary energy costs increased to 19.2c/kWh, from 15.2c/kWh in the corresponding period during the 2010/11 financial year. Primary energy was, thus, the largest single contributor to overall operating costs of 33c/kWh for the period.

The utility received an average price of 55c/kWh on sales of 114 043 GWh, which resulted in revenues of R63.8-billion and profits of R12.8-billion.

The 3.92/kWh rise in primary energy costs was attributed to the increased cost of the 63.3-million tons of coal burnt in the period, the 0.5c/kWh rise in the environmental levy and the additional costs of R1.7-billion related to buying capacity from independent power producers.

It emerged that Eskom had secured 95% of its coal requirements for the coming eight years, of which 43.6% would be purchased through cost-plus contracts and 25.7% through fixed-price or indexed contracts. However 30.7% was still being procured under short- to medium-term contracts.

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