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Declaring coal a strategic resource would not benefit South Africa’s economy – analyst

15th March 2013

By: Yolandi Booyens

  

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Restricting coal exports will negatively affect South Africa’s economy and will hinder further investment in the sector, states mineral advisory firm XMP consulting senior coal analyst Xavier Prevost.

His response is in reaction to Mineral Resources Minister Susan Shabangu’s statement in January at the IHS McCloskey South African Coal Exports Conference, in Cape Town, that government reserved the right to take corrective measures to ensure that the country has sufficient coal for power generation.

Shabangu pleaded with the coal mining industry to cooperate with government to meet the expected Eskom shortfall.

She added that the growth of electricity demand in South Africa had resulted in the depletion of Eskom’s generation reserves, hence, the shortfall in coal supply.

Further, Shabangu noted that the shortfall had been compounded by the worldwide increase in the demand for coal, with countries such as India and China showing much interest in South African coal.

The lack of regulation in the South African coal mining industry had resulted in the power balance shifting from the national interest to the interests of the shareholders of the mining companies, she added.

The declaration of coal as a strategic resource would, however, not halt or discourage private participation and exports, she maintained. Coal’s strategic role will be formulated within the Mineral and Petroleum Resources Devel-opment Act (MPRDA) and its implementation will also be defined legislatively.

The proposed amendments to the MPRDA have already been presented to Parliament.

“As government, we have agreed, but the Act is going through a public participation process to ensure that it becomes part of our legislative framework,” the Minister said. “There will be a balance between what South Africa consumes locally, without losing the export market.”

Prevost argues that declaring coal a strategic resource to protect Eskom’s future would be going about it the wrong way.

Instead of declaring coal as a strategic resource, South Africa can rather limit exports of low- quality coal needed for Eskom to generate power, he suggests.

He points out that South Africa does have an adequate supply of coal resources for power supply and exports, given the right investment climate. “However, South Africa is receiving very little investment, owing to ‘noises’ from government about changing mining legislation,” he emphasises.

South African companies already pay exorbitant export taxes. Should taxes be any higher, it would render coal exports noncompetitive and many coal mines would cease to operate, Prevost warns.

“Other countries, such as Colombia, Indonesia and Australia, could easily fill South Africa’s supply to the global coal trade; therefore, it needs to keep its place in international markets.”


Other Side of the Coin

Mining Weekly reported in February that the current supplies of Eskom would decline rapidly after 2015, when existing large-scale supplier mines would reach the end of their lives and require recapitalisation.

“There’s a serious supply shortage in South Africa to supply Eskom,” South African Coal Roadmap steering committee chairperson Ian Hall stated at the IHS McCloskey conference.

From 2013 to 2019, 120-million tons of new capacity needs to come on stream.

“South Africa’s biggest challenge right now remains the supply of coal to Eskom over the next six years,” said Hall.

Of the four-billion tons of coal that Eskom will need over the next 40 years, two-billion tons will have to come from new sources.

“So, there’s a huge challenge but also potentially a huge opportunity,” he added.
Three-quarters of South African coal is used domestically.

The coal roadmap, which attempts to chart the best way forward was scheduled for completion by the end of February, after two years of work.

The coal roadmap’s actions will involve securing coal contracts for Eskom’s new and existing power stations, as building 120-million new tons of capacity in the next six years is regarded as a tall order.

While Eskom is under enormous pressure to reduce its costs, coal pricing is poised to rise by between 9% and 10% a year.

“The reality is that the 120-million tons of new capacity has to come from new capital invested in areas that are further away from the power stations and have poorer-quality coal,” Mining Weekly stated.

The cost of this 120-million tons is expected to represent a step-change.

Edited by Megan van Wyngaardt
Creamer Media Contributing Editor Online

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