Eskom Coal Supply Agreement

The letters received by Exxaro result in Eskom not will take the whole tonnes of coal contractually agreed for the above period. If Eskom had signed Glencore at the same price as Stuart`s Coal for 2.7 million tonnes over 18 months, it could have saved R927 million on this contract just. Eskom could have saved more than R550 million with another Glencore contract for the same quality as R518.45/tonne. So it`s interesting to note that De Ruyter said coal supply “is under great scrutiny” and suppliers are being contacted to “verify the process.” A good question when revising the “process” would be why a coal supplier whose mine may be located at a power plant provides low-quality coal that seems most useful to the coal transportation company? JOHANNESBURG (Reuters) – Mining company Wescoal said on Tuesday it had received letters from Eskom declaring a case of force majeure in coal supply contracts for its power plants due to a nationwide lockdown to stem the spread of the coronavirus. “Remember that companies know that good quality coal makes a lot of money overseas, because Eskom`s fleet usually burns low-quality coal.” Coal supply contracts between mining companies and Eskom are routine private business, which is why the idea of indexing domestic coal has not received much support. An analysis of a table of some short- and medium-term contracts concluded by Eskom last year and seen by Mail & Guardian shows a difference of R343.41 between Glencores R607.01/tonne of coal price (with a calorific value of 20.5) and the cheapest supplier of the same quality coal, Stuart`s Coal, which is at R263.63/tonne. The contract with Eskom was concluded through the 100% subsidiary of Wescoal Neosho Trading 86. In another example, Eskom Glencore commissioned the supply of 21.50 V coal to the Kriel power plant at R665.85/tonne, but it also commissioned the Welgemeend mine to supply the same quality to the Matla plant with R342.28/tonne. The savings of this transaction, if Eskom had paid the same, would have been R291 million. As for price differences for the same variety of coal, Eskom said: “Mines can have very different costs for producing comparable coal, and these factors are largely related to the nature of the resource and the extraction processes.” Coal is one of Eskom`s most significant costs, given that coal accounts for 36,000 MW of Eskom`s 46,000 MW and billions are spent on it each year. After consulting its legal advisors, Exxaro considers that this event does not constitute a case of force majeure within the meaning of coal supply contracts, given that the power plants are still in a state of electricity. Last weekend, City Press reported that the special investigation unit was investigating allegations that the great 2008 drop crisis, when the government spent R13 trillion to buy coal, was made to enrich itself. By the end of these contracts, more than 70 million tonnes of coal would have been delivered to Eskom`s 12 power plants, some of which include the seven that experienced chronic coal supply problems last year and required emergency collection by the treasury.

Wescoal said the information indicates that the force majeure case would apply from April 16 to the month following the total lifting of the national lockdown. The new credit facilities total R1.1 billion, with a provision that also allows Wescoal to access an additional grantion facility of €500 million subject to credit authorisation, but within the framework of the legal provisions of the refinancing facility, significantly reducing the time to access this additional liquidity facility. Another said: “I`ve always been surprised to see why Eskom has left these prices out of control if it can`t pass them on to the consumer, if they`re outside the RCA provisions of Nersa [South Africa`s national energy regulator for the regulatory clearing account]. . . .

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