Eskom on Arnot job losses: SA can't afford output costs

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Cape Town - Power utility Eskom has expressed concern over reports about the possible closure of Arnot coal mine and the job losses that would inevitably follow such a move, as well as anger with what it termed the leaking of confidential information.

"Eskom is deeply concerned about the recent media reports regarding the potential closure of the Arnot coal mine and the resultant job losses that might follow if Eskom does not extend Exxaro’s contract to supply coal to the Arnot power station," it said in a statement on Tuesday.

It also added: "Eskom views the leaking of confidential information as irresponsible and reserves its rights to take appropriate action."

This follows after it was reported that the National Union of Mineworkers said Eskom had "dropped a bombshell" when it wrote to Exxaro [JSE:EXX] in September to inform it that the mine’s 40-year contract would lapse on December 31 this year.

This would result in the potential loss of 1 139 permanent jobs in addition to the jobs of 546 contractors.

Exxaro shares traded down 0.11% at R44.95 in early trade on Tuesday.

READ: Eskom ‘bombshell’ puts 1000 jobs on the line

"As a state-owned company, Eskom is mandated by the national government to ensure security of electricity supply while contributing to the socio-economic development of the country. Part of this responsibility is ensuring that Eskom continues to support local businesses in a cost-effective manner," the power utility said.

Eskom explained that it has contractual terms, which include production and cost targets, with all its suppliers and that they are required to adhere to the terms set out in their agreement with Eskom.

The power utility has a cost-plus contract with Exxaro - which means Eskom pays the costs of the mine and Exxaro earns a management fee - for the supply of coal to the Arnot power station.

This contract expires in December 2015, and according to Eskom it has been in continuous talks with Exxaro from as early as 2013 about the challenges the Arnot mine has in meeting its production targets as well as its high production costs.

"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."

Eskom therefore started a public procurement process to find an alternative coal supplier for the Arnot power station in August. Eskom points out that Exxaro had the opportunity to submit a bid, just like any other potential supplier.

The bids are under evaluation at present and the successful supplier or suppliers will be announced when the process has been completed, said Eskom.

"Eskom continues to engage with Exxaro in line with contractual obligations; however, this will not be at the expense of taxpayers."

Eskom was at pains to note that as Exxaro is the owner of Arnot, it has the sole decision on whether it closes the mine. Eskom emphasised its concern over the country's dire employment situation: "Eskom is focused on driving socio-economic development while retaining jobs. As such, Eskom is deeply concerned about the reported potential closure of this mine and the potential loss of jobs."

However, it is unaffordable for "Eskom and the country" to continue buying coal at R900 per ton, said the power utility.
       

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