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Parliamentary question on Eskom coal shortages

18 March 2008

You might have noticed last week that we added a ‘Parliamentary questions’ category on the blog. Today, we add our first post in that category with a question to Minister of Public Enterprises Alec Erwin, followed by his reply:

Dr S M van Dyk (DA) to ask the Minister for Public Enterprises:

(a) Since what date has Eskom been experiencing a coal shortage, (b) why was and is this shortage still experienced, (c) what was the shortage, (d) how much coal does Eskom currently receive, as opposed to how much it needs and (e) what has Eskom done to solve this problem since the shortage came about;

(a) Why did he and Eskom ignore the warnings regarding the problems with acquiring coal and the condition of the roads, which have been mentioned in a number of Eskom’s annual reports since 2003, and (b) why did Eskom lower its coal stockpile;

Whether Eskom will change its tender policy for coal in the light of specific problems mentioned in its 2007 annual report (details furnished); if not, why not; if so, what are the relevant details;

(a) How many contracts of former coal suppliers were cancelled or not renewed or considered since 1998; (b) (i) how many and (ii) which new emerging firms have received contracts in order to achieve the goals of black economic empowerment (BEE) and (c) how many of the new BEE firms have met their contractual obligation to deliver sufficient coal on time to Eskom?

Reply:

 (1)       (a-e) Eskom started experiencing coal handling and supply difficulties at the beginning of January 2008.

The lower coal stockpiles are a combined result of the unusually high rainfall, the stations higher burn rates, the inability of the mines to produce more coal than contracted for and a drop in coal qualities, resulting in the power stations having to burn more coal for the same energy output. This, combined with lower deliveries over the holiday season caused the subsequent reduction in stockpile levels. Currently all stations are receiving sufficient coal for their burn requirements and to build stocks faster, additional coal is being purchased.

Eskom has embarked on a procurement process to buy an additional 45 MT of coal over a 2 year window. Of this, 34 MT has already been contracted.

(2)       (a-b) The Department of Public Enterprises together with Eskom did not ignore the warning regarding coal  and condition of the roads. However, the unusually high rains affected initiatives to mitigate the problem. Despite its efforts, Eskom could not increase the coal supply and coal quantities within a short space of time.  Once the coal had become wet due to the high rainfall, coal handling became problematic.

(3)       Eskom’s tendering processes are sound. However, the coal procurement process is being reviewed to identify areas of improvement and to fast track purchases within Eskom’s procurement framework.

(4)       No long term contracts have been cancelled. Tonnages have been increased on most of Eskom’s long-term contracts. Short-term contracts are used to “top up” the long- term contracts and they are renewed based on Eskom’s requirements as necessary. Eskom deals with a large number of BEE companies especially for short term contracts. Eskom does not award contracts on the basis of BEE status alone, but on commercial, financial and technical criteria as well.

Most BEE firms meet their contractual obligations in terms of tonnage and quality. When there are problems with performance, as with all other companies, these are dealt with through the contractual mechanisms. There are no ongoing breaches of contracts.

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One comment

  1. The Reply said “and a drop in coal qualities, resulting in the power stations having to burn more coal for the same energy output.” The Eskom coal supply contracts specify a minimum coal quality. There is no evidence that the coal supplied was not within specification. Can anyone believe anything this Minister claims?



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