Eskom sees opportunity for emerging coal miners to improve utility’s security of supply, logistics

CAPE TOWN (miningweekly.com) – State-owned power utility Eskom’s demand for about 750-million tonnes of coal between now and about 2040, has seen the utility identify opportunities arising for emerging coal miners in respect of two of its strategic objectives – the security of supply and logistics optimisation.

Speaking at the IHS Markit South African Coal Export Conference, in Cape Town, on Thursday, Eskom primary energy division GM Ayanda Nteta noted that the utility in 2016 revised its coal supply strategy, as it recognised challenges the previous strategy did not address.

New tenets of the coal supply strategy include financial sustainability, the generation cost of production, security of supply, optimised logistics and market transformation.

It is in security of supply, particularly, that Nteta believes emerging coal miners can play a part, by helping to supply Eskom with the 115-million tonnes of coal a year it requires.

Eskom currently has short-, medium- and long-term contracts with coal suppliers. The majority of long-term contracts are held by major coal mining companies, such as Anglo American, while emerging miners most often sign short- to medium-term contracts.

While Nteta notes Eskom’s preference for longer-term supply contracts, these contracts are dependent on what the resources hold and what suppliers are looking to commit to going forward.

“Eskom continually aims to look in terms of the transformation drive to ensure that the [coal shortfall] will be less going into the future,” Nteta said, adding that a main focus is to ensure that the utility has “new entrants that are transformed and are able to provide [it] with the coal and qualities at the right time for us,” Nteta said.

Meanwhile, “logistics optimisation . . . has become increasingly important as . . . the coal that we currently source is further and further away from our power stations, so this tenet is becoming very critical for [Eskom] to ensure that we have [better] efficiencies within our logistics,” Nteta said.

Eskom prefers to transport coal by conveyor, then rail and, lastly, by road.

However, with the coal the utility is securing, road is increasingly becoming a cost element, in terms of the total cost of ownership for that coal, she acknowledged.

Although Eskom has contracts with coal transporters that provide transport from the coal mine gate, the utility aims to investigate how it can improve efficiencies and become more effective in delivering the coal to its power stations.

Twelve of Eskom’s power stations are only able to receive coal by road and currently five of the power stations receive coal on rail.

“We continually look to see how the power stations are more multifaceted to be able to receive [coal by] both road and rail,” she said.

About ten power stations can receive coal by conveyor. There is also a large proportion of power stations that can receive coal by a road to rail mix.

There are also opportunities for the mines to have sidings that coal can be taken from, Nteta said, noting that Eskom’s current challenges include road and rail double handling costs.

“When we talk about our total cost of coal, and the proportion in terms of logistics, this is increasing significantly in terms of our cost to Eskom and it’s affecting the total cost of coal,” she explained, noting that if Eskom does not address this, the costs will continually increase.

Eskom is considering joint investment with suppliers on logistics infrastructure, with a preference for rail and rail sidings.

“We are looking at ensuring that all our power stations are rail enabled,” Nteta concluded.