Johannesburg - The horse has bolted. Eskom is not even talking about extending the contract, let alone entertaining some of the National Union of Mineworkers' (NUM) demands on the possible closure of Exxaro’s Arnot mine in Mpumalanga.
But where was NUM when Eskom made clear its intentions to review its coal procurement model?
In August this year, at the height of Eskom’s standoff with Glencore [JSE:GLN] over coal supply, media reports quoted Eskom CEO Brian Molefe and then acting executive for commercial and technology Matshela Koko as giving a clear indication that the power utility is looking beyond the current coal procurement model.
In the current model, most of Eskom’s coal-fired power stations get their coal from nearby “tied” collieries.
But recently, these contracts have come under scrutiny as Eskom has raised quality issues. As the Glencore incident showed, the mines are also unhappy with what they think is a low price Eskom pays for the coal.
It was in the middle of the spat with Glencore that Eskom said it wants the flexibility to buy coal where it can get the best quality.
Such “flexibility’ has far-reaching consequences for the coal industry. This is because the utility still dominates the local coal industry. In fact, it is the largest domestic consumer of thermal coal.
Some of the coal mines were built for Eskom power stations, and owe their very existence to Eskom. So when Eskom pulls out of some of these contracts, jobs losses will be inevitable.
For some reason, the utterances from Eskom a few months ago did not seem to catch NUM’s attention and that is strange. Did they dismiss Eskom’s utterances as a bad joke?
The union is today spitting fire over the possible closure of Exxaro’s Arnot mine if Eskom does not renew the coal supply agreement with the mine next month.
In the event of the closure, 1 700 workers will be jobless. It is when one considers specific job losses that the impact of the closure is magnified.
On Wednesday, NUM will march to the mine in Middelburg with a list of demands. One of these is that Eskom must renew the contract with the same conditions.
But Eskom will have none of it. It says since 2013 it has been in discussions with Exxaro “about the challenges that the Arnot mine has in meeting its production targets and its high cost of production. Despite various meetings and commitments, Arnot mine has still not been able to meet its production targets and Exxaro has not been able to address these issues. This has forced Eskom to allow this contract to expire and to seek an alternative supplier at a lower price.”
The process to seek that alternative supplier has already started. Eskom is currently evaluating Request for Proposal (RFP) for coal supply for the 2 100MW Arnot power station.