VENTURES AFRICA – South Africa’s largest coal producer, Anglo American Thermal Coal, and state-owned utility company Eskom are at an advanced stage of deliberations, with the two parties inching closer to reaching terms on a supply agreement for the proposed greenfield New Largo coal mine project in Mpumalanga.
According to reports, the New Largo is expected to supply the Kusile power station, priced at about R118 billion ($14.2 billion), in nearby Emalahleni, with thermal coal once the station starts to produce an initial 800MW of power by 2015.
The mine, which is in the final phase of a prefeasibility study, would eventually supply all Kusile’s 4800MW capacity by 2018.
Anglo American is expecting to present a finalised agreement to directors in London towards the end of the year. According to Anglo American spokesman the company expects “to seek approval” from the board in the fourth quarter and “commence construction thereafter”.
According to Business Day, progress in the talks comes after Public Enterprises Minister Malusi Gigaba’s call for coal to be classified as a strategic resource to protect Eskom from rising prices and deteriorating quality.
The government wanted Eskom to keep tariff increases at relatively low levels after years of implementing sharp price hikes.
Mr Gigaba’s comments also reinvigorated the debate about the balance between coal exports and domestic use as concerns about the growing interest in South Africa’s coal and the effect of the quality and cost of coal supplied to Eskom came to the forefront.
This global trend has led to a shift in the global market to buying lower-grade coal, traditionally sold to Eskom.
Speaking at the presentation of Eskom’s annual results in Cape Town last week, Mr Gigaba said SA might consider various ways to classify coal as a strategic resource. Eskom, on the other hand, indicated that coal prices were the main driver of the 29.2 percent rise in its primary energy costs in the year to March.
Last week, the state-owned power utility company agreed to a capital-sharing arrangement with mining group Anglo American . The utility company also moved to coinvest in brownfield projects to upgrade and expand a number of the struggling collieries tied to its power stations.
Eskom is a state-owned power company; its operations is divided into Generation, Transmission and Distribution divisions. The utility company generates about 95 percent of electricity used in South Africa. It is also the largest producer of electricity in Africa and ranks among the top seven utilities in the world in terms of generation capacity and among the top nine in terms of sales.
Eskom operates a number of notable power stations, including Kendal Power Station, and Koeberg nuclear power station in the Cape Province, the only nuclear power plant in Africa.