Unions rip into Eskom on wages and South32 coal deal

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Two unions have slammed Eskom for entering into a costly coal-supply deal.
Two unions have slammed Eskom for entering into a costly coal-supply deal.
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  • Two unions have slammed Eskom for entering into a costly coal-supply deal with Seriti Resources and South32 SA Energy Coal Holdings.
  • The unions took issue with Eskom renegotiating coal-supply deals upward while pleading poverty to employees asking for wage increases.
  • South32 invoked a hardship clause in its agreement with Eskom as it was supplying Duvha station with coal at a loss.

The National Union of Mineworkers (NUM) and the National Union of Metalworkers of SA (Numsa) jointly slammed Eskom for entering into a costly coal-supply contract with Seriti Resources and South32 SA Energy Coal Holdings, while pleading poverty to employees asking for wage increases.

The NUM and Numsa describe the arrangement made by Eskom and the two resources companies as "state capture". This comes as unions are agitating for a 15% wage increase, while Eskom has offered a wage increase of 1.5%.

Now the unions are putting a renegotiated coal-supply deal with South32 at the centre of the fracas with Eskom, after the company invoked its hardship clause as a supplier of coal to the Duvha power station in 2019.

Eskom announced on Monday that South32 met its request for the sale of its majority shareholding to a company owned by Seriti Resources Holdings. The coal-supply agreement between South32 and Eskom stipulates that South32 get Eskom's approval before changing in ownership. This will allow South32 to coin R550 per ton for supplying coal to Duvha from June.

The deal helps Eskom in securing the coal supply for Duvha by modifying the coal-supply agreement until 31 December 2024 and the continued use of South32's infrastructure. South32 currently supplies most of the coal that the Duvha power station requires.

"We reject that Eskom can give Seriti and South32 a whopping 49% increase on coal tonnage while they are refusing to give workers their deserved wage increase.

"To our utmost shock, NUM received a section 189A notice from South32 even though [the] Competition Commission approved the merger between Seriti [and] South32," the joint statement said.

Approved by Treasury

Eskom spokesperson Sikonathi Mantshantsha said the power utility renegotiated a contract in light of the developments affecting Seriti and South32 and that Eskom secured National Treasury approval for the amendments.

"Eskom does not disclose the price of coal because it is commercially sensitive. But I believe [the] media have published the new price. There has been a renegotiation of the contract, which is [for] four years.

"As required by law, National Treasury has been approached and approved the amendments. All the changes with regards to the cost of the contract have been approved by [Treasury] as required," said Mantshantsha.

Mantshantsha said in 2019, South32 invoked the hardship clause in the coal-supply agreement, citing financial losses after selling coal to Eskom below its cost of mining. He said Eskom reviewed the status of South32 in light of the hardship clause and confirmed that the mine was making a loss.

"They activated the hardship clause and Eskom conducted due diligence and was satisfied that the company was making losses on the contracts and that supply would be in jeopardy if the issue was not remedied," Mantshantsha said.

Seriti also released a statement on Monday on its acquisition of South32, in which Seriti CEO Mike Teke said the deal would secure a reliable coal supply to Eskom. The sale of the company is expected to be finalised on the first of June.

"It will secure a sustainable, reliable and cost-effective coal supply solution to Eskom, and at the same time bring opportunities for further synergies and optimisation within Seriti. This is a further demonstration of our commitment to South Africa and to the industry," said Teke.

The Seriti statement said Eskom agreed to amend the terms of the Duhva Coal-supply Agreement, which was making South32 a loss. This included adjusting the coal price to R550 per ton from 1 June 2021, which will escalate annually from January 2022 in line with the Producer Price Index.

The unions maintain that Eskom is looking to mislead the public on the average salaries at the power utility, denying that workers at Eskom earn an average salary of R773 000 per annum.

Eskom's interim 2020 annual report shows that its 44 772  group employees recorded current unaudited employee benefit obligations of R4.5 billion by September 2020, compared to R4.02 billion in the same period of 2019.

The 2020 integrated report said, despite the reduction in headcount, employee costs remained stable because of the 7% salary increase for bargaining unit employees, in line with the three-year wage agreement concluded in the prior year.

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