Coal prices may fuel power costs

2013-03-10 10:00

The Competition Tribunal believes electricity prices could skyrocket above expected hikes from Eskom, if coalprices in the domestic market increase as expected.

This was contained in the Competition Tribunal’s Reasons for Decision document released this week, which relates to the approval of the Glencore-Xstrata merger.

Under the title “Non merger-specific broad public-interest concerns” the tribunal identified a number of factors that do not favour domestic coal

users such as Eskom, which generates 90% of its electricity from coal.

Other factors identified included the impending end of some of Eskom’s long-term coal contracts, Eskom’s increased demand for coal, the rise in volume of short-term coal contracts used by Eskom, increasing rail capacity to transport coal exports, high coal-export prices becoming attractive to domestic coal-mining operations and the

trend of domestic coalprices rising towards an import-parity price.

“These trends do not favour domestic coal users, specifically Eskom as the largest customer in South Africa,” said the tribunal’s document.

“However, these developments are occurring separate from the proposed merger.”

“These factors will no doubt have an impact on Eskom’s ability to procure coal, the price thereof and to produce competitively priced electricity,” the document continued.

The tribunal said the rise in coalprices was a “serious concern” and pointed out that it could have “detrimental effects” on economic growth in the country and South Africa’s development goals.

“These concerns, which are industry-wide, could be addressed by other policy instruments, if government deems it appropriate, and if government was to ensure that the strategic importance of South Africa’s coal reserves to domestic industries is protected,” reads the document.

The tribunal called on the Competition Commission to use its advocacy role to engage with stakeholders and policy makers to advise them on these public-interest concerns.

Eskom has budgeted for a 10% increase in coalprices over the next five years and it is expected to spend more than R293?billion in the next five years on primary energy sources.

Initially, Eskom had approached the tribunal to intervene in the merger, citing concerns about post-merger supply of coal.

Eskom stated that it would be advantageous if certain coal-supply-related undertakings could be obtained from the merging parties.

Eskom’s factual witness, Kiren Maharaj, told the tribunal that the parastatal’s concerns were that Xstrata will adopt a less favourable pricing strategy towards its negotiations with Eskom around coal supply.

Eskom was pushing for conditions to be attached to the merger decision that would maintain the current ratio of coal supplied to it over coal exports, secure it new supply contracts and ensure that export-parity pricing is not applied to domestic coalprices.

Exxaro this week announced its annual results for the year that ended on December 31 last year.

It stated that there were challenging trading conditions for coal in 2012 with average export prices dropping from $105 a ton in January to a low of $85 a ton in November.

“A general decline in export volumes was also experienced during the year,” said Exxaro’s statement.

“Exxaro realised an average export price of $94 a ton in 2012, compared to $118 a ton in 2011. Production earmarked for export was successfully redirected into the domestic steam market where opportunity arose.”

This was on the back of weakened global demand.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/Africa
Traffic Alerts
Traffic
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.