|
Opinion:
Eskom and the cost of coal price controls...
by Chris Yelland, EE Publishers
For about two to three years now, Eskom has been lobbying government to declare coal a strategic mineral, introduce mechanisms to control the price of coal to the utility, and limit its export. This is being done, apparently, in efforts to try and secure the supply of coal for power generation at prices acceptable to the utility.
The lobbying seems to have borne fruit. In terms of proposed amendments to the Mineral and Petroleum Resources Development Act, the minister of Mineral Resources may, by decree in the Government Gazette from time-to-time, declare selected minerals to be strategic, and limit the export of the declared strategic minerals. This is also seen a precursor to the introduction of some form of price control on the supply of coal to Eskom.
But in pressuring government for coal to be declared a strategic mineral, limit its export at world market prices based on supply and demand, and control the price of coal supplied to Eskom, the utility is sending out seriously confused and mixed messages.
On many occasions Eskom has acknowledged the need to diversify the country's and its own heavy dependence on coal as the primary energy source for power generation. The national Integrated Resource Plan for Electricity IRP 2010 - 2030 indeed reflects this. South Africa and Eskom are committed to reducing CO2 emissions through a move to cleaner electricity generation technologies, including nuclear, gas, hydro and renewable energy. Eskom has also often stated vigorously that its prices need to move progressively toward cost reflectivity based on its real and full input costs.
From its own experiences over many years, Eskom knows all too well the negative impacts of controlling the electricity price below true market and cost reflective prices. It knows how this has inhibited and still inhibits its own ability to finance and build badly needed new power stations and generation capacity. It knows that this creates unlevel playing fields that inhibit new investment and the entry of new players to meet demand. And it knows that maintaining artificially low prices is ultimately unsustainable and leads to massive price shocks when the inevitable correction occurs.
Yet this is exactly what Eskom is proposing for the coal mining industry.
Operating in an unreal world with artificially low coal prices to contain electricity price increases will simply entrench the status quo of coal as the primary energy source, with associated high CO2 emissions. Limiting the export of coal and controlling its price to Eskom will inhibit the utility and the country's ability to finance and build new power stations, and will also inhibit investment in and adoption of currently more expensive alternative electricity generation technologies and new energy sources.
Eskom's response to the coal mining industry that it will be engaging with a multitude of small emerging coal miners to meet its need for the significant part of its new coal requirements is also hard to reconcile with its stated intention to contain coal costs and maintain stringent quality requirements. Eskom's coal usage is huge and increasing, and coal mining needs massive investment, economies of scale, high technology and serious engineering. If anything, small emerging miners need to unite to ensure the formation of adequate capital, resources and skills necessary for the reliable supply of coal to a major electricity generator such as Eskom.
With a looming coal supply shortage to meet Eskom's demand, bullying tactics, limitations on coal exports and price controls will certainly not lead to the necessary investment and development of new coal mines to feed Eskom's increasing demand for coal for electricity generation. If fact, it will have quite the quite the opposite effect.
Eskom needs to engage with the coal supply industry in good faith to purchase coal of the required quality and calorific value at market related prices. It also needs to engage with coal miners as equals and partners to reach voluntary bilateral contracts for the long-term supply of coal at below-market prices based on mutual benefits to both Eskom and the miners.
Central command and control economies have failed spectacularly, and Eskom's coal supply strategy appears confused, contradictory and irrational.
|
