Electricity supply won't be compromised by limited coal supply - Eskom

Johannesburg – Despite a shortage of coal supply to the Hendrina power station, due to Optimum Coal Mine not fulfilling its contractual obligations, Eskom said the electricity supply will not be compromised.

Eskom was responding to questions posed by Fin24 following a report by amaBhungane on Thursday that Gupta-owned Tegeta’s Optimum Coal Mine is threatening to cut its coal supply to the  power station in Mpumalanga.

According to amaBhungane, leaked minutes from a meeting indicate that Tegeta wants Eskom to pay more that R150 per tonne for the coal. The minutes also revealed that Eskom is considering taking legal action against Tegeta.

Eskom confirmed to Fin24 that there was a risk of “insufficient coal” at Hendrina. “This risk is primarily due to the threat of sustained suspension of supply by Optimum Coal Mine, and that Optimum is not meeting their contractual requirements,” said Eskom.

The stock days are below the Grid Code requirement. “As at November 24 2017, Hendrina was reported to have approximately 10 coal stock days at its holding facility,” said Eskom.

Eskom is still investigating the “unexpected measurement” of low stock days and said it could be due to “deficiencies” in stock day accounting. “The previous assessment during October 2017 was 25 days.”

Alternative coal supply

Eskom said it would be taking “urgent actions” to address the risk, which include considering a replacement of coal supply contracts to Hendrina.

“Eskom is currently transporting coal from existing Eskom contracted sources to Hendrina. 

“Eskom is also working with National Treasury to place contracts for the supply and diversion of coal from other Eskom contracted sources to Hendrina.”

Eskom said it is also reworking its production plan to “reduce the burn” at Hendrina, and ensuring minimal impact on production costs.

“Despite the challenges being experienced at Hendrina, Eskom will ensure that the power system will not be compromised,” said Eskom.

Eskom did not say of Tegeta is well within its rights to raise the coal price. Nor did the power utility say if the alternative measures it will take may incur losses.

Eskom did not confirm if it would take legal action against Tegeta. 

Earlier in November, Fin24 reported that Eskom was on the brink of insolvency, with only R1.2bn in liquidity reserves.

On Wednesday Moody’s downgraded Eskom to Ba3 due to its liquidity issues and poor governance. The ratings agency placed the power utility on review for a further downgrade. 

Earlier this week S&P lowered Eskom’s long-term foreign and local currency corporate credit rating to B- from B+, with a negative outlook, Fin24 reported. 

Eskom’s acting CFO, Calib Cassim, has since said the power utility was committed to ensuring an improvement of its liquidity levels,  and to "restoring the positive lender and investor sentiment to unlock access to the markets”.

“We remain positive that with the co-operation of the relevant participants, the funding plan can still be executed, albeit under challenging conditions. This will strengthen our liquidity and propel us towards positive cash flows,” he said.

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