Eskom approves higher coal price to supply Duvha power station as part of takeover deal

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Eskom approves Duvha Power Station coal supply agreement with South32. (Photo: Getty)
Eskom approves Duvha Power Station coal supply agreement with South32. (Photo: Getty)
  • Eskom has agreed to pay a higher price for coal for its Duvha Power Station.
  • This will pave the way of sale of South32 SA Energy Coal to Seriti Resources.
  • Since 2019, the coal miner has claimed that it was selling coal to Eskom below its cost of mining.

Eskom has approved a higher coal price supply the Duvha power station in Mpumalanga.

This will help pave the way for the sale of South32's SA Energy Coal (SAEC) to black-owned Seriti Resources.

SA Energy Coal, which is majority-owned by Australia-based South32, runs four collieries and three processing plants in eMalahleni (previously known as Witbank) and Middelburg.

Seriti, which is headed by Mike Teke, said Eskom's agreement to amend the Duhva Coal Supply Agreement would adjust the coal price to R550 per ton, with effect from 1 June 2021. That's 32% higher than the previous price of R416/ton.

Eskom also agreed to an annual escalation from 1 January 2022, in line with the Producer Price Index.

Eskom said the modification of the coal supply agreement also secures the continued use of SAEC's infrastructure at the mine so that alternative coal supplies can be delivered into the power station. The parties agreed on the modification of the coal supply agreement until 31 December 2024.

The supply agreement between the companies required South32 to obtain Eskom's consent for any change in the ownership of South32 SA Energy Coal (SAEC), which currently supplies most of the 2 875MW power station's coal requirements.

CEO Andre de Ruyter said the development would ensure continued delivery of coal for the Duvha Power Station and that the agreement provides the "security of supply at a price that is affordable to Eskom".

In October 2020, Treasury rejected Eskom’s deviation application for approval to solicit long-term coal supply for Duvha Power Station from the mine without going through competitive bidding. Treasury only granted the extension of the supply of coal to Duvha under the interim relief agreement.

"Prior to this transaction being concluded, Eskom conducted an independent due diligence exercise on Seriti, led by a firm of attorneys. Eskom is satisfied the new owners of SAEC have the capacity to fully discharge their obligations to Eskom, in terms of the CSA," according to De Ruyter.

In June 2019, SAEC claimed financial hardship, arguing that it had been selling coal to Eskom below its cost of mining. The power utility said it then granted it relief after its assessment showed that the mine was indeed operaging at a loss.

Eskom and Seriti have also agreed to a number of proposals to improve the long-term, sustainable and cost-effective supply of coal to Eskom, including commitments for continued supply from the Kriel and New Largo mines. 

South Africa returned to stage 2 load shedding on Sunday night due to the loss of ten power generating units, including at Duvha.

The article has been updated to correct the previous coal price paid by Eskom.

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