As consumers and industry wonder whether or not Eskom can keep the lights on, rest assured that a significant number of vested interests are intent on maintaing the status quo.
Right now, there’s a thicket of claim and counter-claim about last Thursday’s load shedding, which was the first in six years. Was it, as outgoing Eskom CEO Brian Dames claims, all because of a load of wet coal delivered to the Kendal power station by BHP Billiton? Or, as Public Enterprises Minister Malusi Gigaba contends, because the coal miners have been delivering poor quality coal all along to the national electricity supplier, while exporting the good stuff at a fat profit? Or because – back to Dames – we should have started building new power stations ten years ago? Or, as many others contend, because the process of bringing renewables like wind and solar power on stream has been almost unbearably slow?
Certainly, the DA has a point when it asks what Eskom has been doing for the last six years to prevent load shedding.
As always, when it comes to cutting through verbiage and finger-pointing, it helps to follow the money. Or, to put it another way, why is South Africa so committed to coal and why did Cabinet, in the middle of last year, commit to building yet another coal-fired giant to follow Medupi and Kusile? This unnamed plant is just called Coal 3 for the time being, and we know little more about it than the fact that building is not likely to begin in the near future, but, more likely, after the competition of the first two. We do know that Coal 3 will be anchored in the Waterberg and designed to exploit the massive reserves of coal there.
So who benefits?
No question at all that the existing big players, like Anglo Coal, BHP Billiton and Exxaro all have major coal supply contracts in place. How valuable those contracts are, compared with their export deals, is not known. Eskom does get its coal from these sources at a lower-than-export-price, but that’s why the grades supplied locally are lower.
Equally, we know that Eskom now buys as much as 30% of all its coal from BEE suppliers: the black diamonds mining black gold, if you will. These are certainly the players who would benefit from new order mining rights in the Waterberg, more so than the established corporations.
And Eskom itself is predicated on coal. Its management, its strategists, its culture is mainly coal-based. Leave aside the elderly nuclear plant at Koeberg and a few expensive, supplementary diesel operations, and Eskom is just as committed to coal as anyone else.
Contrast the future profit streams from coal for all of these interests with similar profits emanating from either renewables or nuclear.
Nuclear means paying most likely the French or Chinese for their technology and know-how. Wind power units come from Denmark or China. Solar is the preserve of the Germans, and, to a lesser extent, the Chinese as well.
Yes, a number of BEE firms are involved in consortia with some of these overseas players, and, yes, 17 successful bidders are participating in the Renewable Energy Independent Power Producer Programme (REIPP). One by one, they should start coming on stream in 2015 or 2016. But don’t lose sight of the fact that the REIPP process began more than six years ago. It’s taken us three years to whittle the field down from 93 bidders in 2011 to the remaining 17. Why all the foot-dragging?
And why has the ANC just bulldozed the Mineral and Petroleum Resources Development Amendment Bill through the National Assembly? This gives the state a 20% “free carry” in all new energy projects. This means they get one fifth of the cake free and, yes, this would apply to all that Waterberg coal, too. The new law would also allow the state to buy up to 50% of any such new development at an “agreed” price. Who do you think is going to benefit from that?
So here’s the bottom line – no pun intended. The profits from coal remain very firmly in South African hands. Not the hands of the consumers or users, mark you, but the hands of people and companies that hold the mining rights, both the established and the newcomers.
The more expensive coal becomes, the more thos benefit and the less certain will be South Africa’s electricity supply. Without the certainty of that supply, we can kiss good-bye to many forms of future investment and to jobs that could have been created.
After all, that’s the status quo.