Eskom's $4bn coal bill headache largely of its own making

News24 - Tuesday 8th October, 2019

South Africa wants coal producers to help debt-stricken state power utility Eskom tackle its skyrocketing costs of fuel - a problem that's largely of its own making.

Eskom traditionally signed so-called "cost-plus" contracts for coal with mining companies that managed and operated shafts the utility helped finance.

In 2015 then-CEO Brian Molefe criticised the model, saying the utility wanted to buy "the bread, not the entire bakery". Eskom increasingly began to enter into short-term supply agreements.

Eskom's coal costs have risen almost 22% since 2016 as a result of the shift and rising international prices driven by increasing demand from India and China.

Government has just three weeks left to make tough decisions on Eskom, economy

The utility now concedes that it erred and says it has approved a long-term coal strategy "including the investment in cost-plus mines where required".

Meanwhile, the government wants coal producers to consider offering Eskom discounts on the more than 110 million tonnes a year of the fuel it burns.

With supplies constrained and continued demand for exports, they have little incentive to make concessions.