No 'Plan B' as Eskom coal supply suspended

AUGUST 22, 2015

Eskom does not have a contingency plan should coal supplies at its Hendrina Power Station be depleted, after administrators on Friday suspended a supply deal with Optimum Coal Mine.

Eskom spokesperson Khulu Phasiwe told Fin24 that while it was important to have a ‘Plan B’, the utility would devise one at a later stage.

Phasiwe said Hendrina Power Station, which pushes 2 000MW into the SA grid, had 40 days worth of coal supply.

Glencore has said that its Optimum Coal Mine was under financial strain because it was selling coal to Eskom for less than the cost of production.

Business rescue practitioners, Piers Marsden and Peter van den Steen, on Friday informed Eskom of the suspension of its coal supply agreement with Optimum.

"We believe that it will be in the best interests of all parties for a new agreement to be concluded between Eskom and Optimum mine," Marsden said in a statement.

"If Optimum mine is forced into liquidation it will result in interrupted coal supply to Eskom, job losses and other negative consequences and ultimately could result in substantially higher costs for Eskom."

The suspension of Optimum's agreement with Eskom comes at a time when SA is experiencing its worst power shortages in decades and economic growth is being stifled by load shedding.

In the event that Hendrina’s coal supplies were depleted, Phasiwe said a contingency plan might involve getting coal from another company.

According to Phasiwe the frequency of load shedding would not be impacted by the suspension.

"We will continue to run the power station without interruptions," he said.

Optimum's administrators were seeking a new contract in which Eskom agreed to pay a "cash cost of production" of between R400-R450 per ton of coal.

Under the current contract, which is valid till 2018, Optimum supplies coal to Eskom at R150 per ton.

Eskom’s legal team is currently considering the utility’s options for legal recourse.

 

-Fin24