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The curious case of Jabu Mabuza and Eskom’s coal policy

Denies policy that ‘drove majors out of industry’ ever existed.

When Eskom chairman Jabu Mabuza last week stated that everybody is to blame for the current load shedding, there was quite a reaction.

The week before, at Eskom’s interim results presentation, he made another strange statement that went mostly unnoticed.

Mabuza told journalists and analysts that Eskom doesn’t have a policy that coal suppliers must be majority black-owned.

This requirement was however the subject of much controversy a few years ago, with Eskom wanting, for example to see Exxaro in 2016 when the mining major’s black shareholding was expected to fall to 30% on the expiry of its BEE deal.

When Moneyweb asked Mabuza when Eskom dropped this black ownership requirement, he denied that it ever had such a policy.

This sounded strange, and a quick Google search dug up an Eskom statement dated December 5, 2016, in response to the Exxaro ownership situation.

Eskom policy does indeed have ‘a black ownership target’

In the very first sentence Eskom makes it clear: “Eskom’s coal procurement policy requires all the mines that supply coal to its power stations to have a black ownership target of more than 50% throughout the life of the mine.”

According to the statement “Eskom partnered with the Departments of Mineral Resources and Public Enterprises in December 2012 in the development of the Black Emerging Miner (BEM) Strategy.”

At that time Brian Dames was the CEO of Eskom and Malusi Gigaba the public enterprises minister. 

According to Minerals Council senior economist Bongani Motsa it was this very policy, together with Eskom’s decision to end long-term coal supply contracts, that turned the local coal mining industry on its head. It in fact drove some of the majors out of the industry, Motsa told Moneyweb, and is largely the reason why Eskom is now battling with coal supplies.

Policy pushed aggressively to ‘pursue corruption’

He says Eskom under the Zuma administration was pushing BEE aggressively “to pursue their corruption programme”. It refused to renew long-term supply contracts with the coal majors when they expired, which together with the misalignment of its black ownership requirement with the 26% requirement of the mining charter, resulted in untenable policy uncertainty.

Anglo American Coal sold all its Eskom-tied coal mines and now focuses on exports. The mines the company sold are New Vaal, New Denmark, and Kriel, all sold to Seriti for R2.3 billion. New Largo was sold for R850 million to a Seriti-Coalzar joint venture, Motsa says.

Three of South32’s four coal mines – Khutala, Middelburg and Wolvekrans – are currently on the market for an estimated R12 billion.

And, of course, Glencore was forced to sell the Optimum mine to Tegeta for about R2.15 billion.

Glencore is still in the coal mining space. It owns the Goedgevonden Complex (an open-cut mine, in a joint venture with ARM Coal), the iMpunzi Complex, Izimbiwa Coal, and the Tweefontein Complex, according to Motsa.

The only coal major that has not sold any assets is Exxaro, which is in fact looking to buy some of the coal assets from South32, says Motsa.

Coal mines sold – at a cost

Motsa says some of the coal mine sales were concluded at major discounts due to the policy uncertainty.

In addition, investment in coal mining dwindled, also due to policy uncertainty. In 2009, for example, the industry invested R7.4 billion, but in 2017 only R3.8 billion.

This, even though the international coal price grew higher than the local price as benchmarked by Eskom, says Motsa.

Since the political leadership changes this year and the appointment of a new Eskom board, the utility has begun to override the 51% requirement and it is once again signing long-term contracts.

Moneyweb has learnt that Eskom now offers the coal majors on average R300 per ton, which they find acceptable. They can expand operations due to the long-term offset agreement and sell the extra coal at higher prices on the export market. The export price is currently between R900 and R1 100 a ton, says Motsa.

However, it takes time to develop or expand coal mines and delivery in terms of these new contracts will not start immediately.

Small to medium miners, meanwhile, get closer to R200 per ton from Eskom, which leaves these miners frustrated and limits their production.

Will now buy coal from ‘anybody’ regardless of black ownership

Mabuza said at Eskom’s interim results presentation that the utility abides by the Preferential Procurement Policy Framework Act (PPPFA) and the Mining Charter, and “will buy from anybody who will sell us coal and mine legally”.

The coal mining industry has, however, burnt its fingers with Eskom and a sudden reversal of policies or even a denial of earlier policies cannot undo the turmoil Eskom’s conduct caused within the industry. This industry has long lead times and a sudden change of heart at Megawatt Park won’t result in new coal deliveries tomorrow.

Actions have consequences, and that is what Eskom is now experiencing.

Why Mabuza denied the existence of the policy is not clear. When Moneyweb asked Eskom’s media desk, it merely confirmed that the requirement was based on its shareholder BBBEE compact and endorsed in the Eskom coal sourcing strategy in 2012.

According to Motsa the policy has not been formally withdrawn.

Perhaps Mabuza should take note that mining companies sold assets worth billions of rands on the basis of this policy that he denies, formally inform the coal mining industry that it has been scrapped, and then try to start building a new relationship with the industry.

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The existence of the policy is common knowledge – many suppliers to coal mines also went out of business due to the changes in ownership when the mines were sold.
It was astonishing to see how smaller businesses that supplied the mines folded one after the other and people lost jobs. And it may also have been the time that the notion of coal being a strategic commodity over which government wanted control in terms of supplies, was prominently in the news.
Yes, government destroys a whole industry and then cry foul over unemployment! No wonder SA’s mining sector is where it is today – same as education.

Not only coal mines. Eskom has since 2012? been insisting on all its suppliers being at least 51% black owned.

Since Zuma appointed Gnashers Gigaba as Minister of Transformation at SOEs.

I always found it to be astonishing how Eskom had problems in sourcing coal in a country which is rich with coal?

The Economy is being impacted because Eskom could not find a coal supplier that is black majority owned? why not go for the best supplier and cheapest first?

I support fairness in business and the economy for everyone to have an opportunity to live and prosper. Surely government could have found a fair deal/medium for everyone?

Companies are closing down because of poor electricity supply guarantees, people are losing jobs, the country is getting poorer.

Now I know why I do not have electricity at home and have to add an hour extra for travel time to work and spend more fuel.

And just as private education mushrooms, so more and more people will go off grid with rooftop solar, and businesses will install their own capacity.
SA won’t need Eskom in 20 years’ time.

And then some people wonder why the rich get richer and the poor get poorer. God helps those who help themselves. Government simply help themselves.

20? 10. It won’t exist (save for the broken bits owned by the World Bank and IMF)

Once again – everybody is missing the point. There is a fundamental principle that is completely overlooked:

AFFIRMATIVE ACTION IS IRRATIONAL.

It’s completely necessary that everyone has EQUAL opportunities economically and that there’s government intervention to bring that about but BEE itself has not worked at all!

That’s how they want it, break it down then issue tenders to fix it and steal like mad.

This country is going down the drain due to one factor. No skills transfer. This is found in all sectors of the economy. The new incumbents think they know it all. There is no understanding how a business or the economy works. Where on earth do you tender for work, get funds up front and have the work completed. Will happen no where else in the world. The upfront funds will be spent and the work will not be completed. There is a basic expectation that wealth is created by receiving funds. Not using funds, doing the work end extracting at the end of the day profits which is the part that is called wealth creation. Wake up brothers no such thing as a free lunch. This is what is coming to roost now. a Bankrupt SA.

BBBEE, a racist policy that is the breeding ground for fraud and corruption. It is the root cause of the majority of ALL South Africa’s econocmic problems. It is time for this to be scrapped.

So, we are to save Escom with a liar in charge. Bleak prospects indeed.

All Eskom wants right now is that 15% increase it tabled, to achieve this, the coal scam is been used. whether there’s a shortage of coal or not, the reality is that In Richards Bay as we read is that top grade coal (Anthracite) is been loaded on to Chinese ships (200,000 tons) per ship,( a viral is making its rounds on social media with arial Pics.) Reportedly there are 36 ships waiting to be loaded…this story needs to be verified and exposed to the public if there’s any truth in it.

According to Minerals Council senior economist Bongani Motsa Motsa told Moneyweb “…it is this very policy, together with Eskom’s decision to end long-term coal supply contracts…. is largely the reason why Eskom is now battling with coal supplies.”

Why do people LIE?!?!?

ESKOM DOES NOT HAVE COAL SUPPLY PROBLEMS!!

You reap what you sow. I for one have no sympathy for this corrupt ANC Government as they’ve absolutely destroyed South Africa in all aspects.

“Why Mabuza denied the existence of the policy is not clear”. Well thank you for being so careful and polite, pussy footing around the real issue of what seems an obvious lie. Let me speculate. It could be because he’s an ANC cadre and lying is the first kneejerk response as they all, always have something suspect going on. It could be that he, and all the tenderpreneurs who have benefited have something to hide (probably being paid for substandard coal or even no coal at all). Or, of course, it could be that he is actually clueless, as are most of the Eksdom executives and he genuinely couldn’t be bothered to know or find out what is going on as he’s too busy feathering his own nest; legally and illegally.

I fail to see why Eskom needs to be helped by bailouts, etc. I have little sympathy:

Eskom remains an example of a SUCCESSFUL pioneer in transformation-policies. Their B-BBEE score must be exemplary! The aims & vision for complete transformation, laid down in the ’90’s, have been met and exceeded. All good then. Let’s give credit where it is due.

Eskom is thus doing well in my book, and have achieved their visionary success, with which many private companies are struggling to achieve. (I will not allow current “noise” about financial woes, loadshedding, dubious contracts, etc to distract their main focus).

Instead, to CELEBRATE Eskom’s transformation success over the past two decades, it’s proposed that now is the time to provide all loyal customers with a once-off 1,000kW.H FREE in Jan 2019, as a ‘thank you’ for our continued support. A Black Friday event from Eskom is long overdue? (not a blackout!)

I agree, largely because electricity is counter-revolutionary and light is a false narrative perpetuated by the imperialist Western dogs. We must restore our electricity manufacturing skills that were stolen from us by the colonisers!

Thank you Antoinette for the explanation I’ve been looking for in vain in all the regular newspapers.
Moneyweb, you have a real GEM of a reporter in Ms Slabbert

So basically there must be no black ownership at all and then there’ll be investors and coal available. Racial exclusion.

The SoE’s are a bit like a long boat – you need x number of oarsmen and a cox to get from point A – B and all the oarsmen need to pull in unison to go forward and complete the course. This government deploys politically sensitized people to be the cox and oarsmen who have no obvious knowledge, skills or intelligence to be the cox or oarsmen, thus the longboat stays in one place and will never go forward. The cox and the oarsmen have no idea how to rectify the situation and if they are dumped overboard can’t understand why, and run off to court to get their jobs back yet, they are patently useless, incompetent and will never manage the task at hand

Eskoms policy is that they want nuclear, that they control. From the kickbacks to the production they will be stealing all the way.

They cannot even build a coal fired plant within budget, imagine a trillion rand nuclear plant coming in at 6 trillion 10 years late.

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