South African Coal Reserves Could Be Ring-Fenced by Export Levy

South Africa may look to impose a coal export levy to ensure the country has adequate supplies of thermal coal for power generation. The weekly South African Coal Report has a closer look at the implications on South Africa’s coal industry.
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Sept. 4, 2012 - PRLog -- South Africa may look to impose a coal export levy to ensure the country has adequate supplies of thermal coal for power generation, in a bid to stave off a repeat of the electricity crisis of 2008 which resulted in mass blackouts.

It could be a worrying sign for South Africa’s coal industry which has increasingly sought to gain a slice of the lucrative export market where higher steam coal prices can be attained.

Last month South Africa’s National Development Plan (NDP) was released and while it did not explicitly endorse a coal export levy, there was particular attention paid to how future electricity demands could be met through the provision of thermal coal. The NDP also raised the possibility of importing electricity from neighbouring Botswana and Mozambique.

The long-awaited final version of South Africa’s National Development Plan (NDP), a set of policy directives and actions aimed at reducing inequality and poverty in the country, has outlined a series of positive ideas for the coal industry both locally, and regionally.

The NDP was drafted by a council of authors convened under National Planning Minister, Trevor Manuel’s department. The latest draft of the NDP includes comments and observations made following a public airing. It was handed over to President Jacob Zuma in the National Assembly on August 15.

Predictably, the document has thrown its weight behind the building of rail and water infrastructure, specifically the rail route from the Waterberg coalfields in the Limpopo province to Richards Bay in KwaZulu-Natal province. There are no surprises in this and state-owned transport utility, Transnet, has already begun work on an initial 23.5Mtpa rail line.

However, the document does not explicitly support a worrying development which is a plan, currently being investigated by the minerals resources and public enterprises department, to ring-fence coal reserves. This would limit exports possibly through a coal export levy, and thereby secure supply for Eskom.

In response to the stated objective of earmarking an additional 29,000MW of electricity by 2030, the NDP identifies the following action: “Ensure domestic security of coal supply for existing power stations through industry compact, more comprehensive coal field planning and opening up the Waterberg for coal mining”.

The “compact” implies the coal sector will contribute to discussions regarding supplying Eskom with enough coal for its capacity expansion strategy rather than being on the end of a government diktat. The requirement for 29,000MW is calculated on the basis that some 10,900MW of existing capacity is to be retired, implying a new build of 40,000MW.

Interestingly, the plan has also raised the prospect of importing electricity, a development that indirectly endorses building power capacity in Botswana and Mozambique. Attention has recently returned to Botswana’s coal and power industry which is being earmarked as a node of growth not just for the country, but as an important participant in filling the 60,000MW surplus that is developing in southern Africa.

The need to import power, notwithstanding the massive build South Africa’s Eskom is already planning, is based on the ideal that the country improve its carbon emission status by procuring at least 20,000MW of renewable electricity by 2030.

Importing electricity from the sub-Saharan region also lessens the strain on financing new coal-fired power stations. The NDP observed that in “playing catch up” in building power capacity and related infrastructure, South Africa was paying a heavy price.

“The fact that one new power station (producing 4,800MW of electricity) costs about twice the entire depreciated capital stock of existing power stations (producing 40,000MW) illustrates the challenge,” the NDP said.

It said the cost of building power capacity in South Africa had to be borne by users, consumers and industry alike, but it was also critical of state-owned enterprises such as Eskom (although it didn’t identify it by name) which has shown “institutional weakness” by allowing the 2008 electricity crisis to occur. This was the period when South Africa’s mining sector ground to a halt for several weeks amid rolling blackouts that also extended to households.

It therefore recommended tighter controls and improved transparency in state-owned companies such as Eskom. “Averting such problems requires clear institutional arrangements, transparent shareholder compacts, clean lines of accountability and sound financial models to ensure sustainability,” the commission said.

This comes against less than clear guidelines on what Eskom intends charging for electricity over the next three years. It recently emerged in parliament, at a portfolio committee meeting, that it wants three years each of 15% increases in electricity tariffs or of 19% increases each year if the South African National Treasury approves a planned carbon tax, of which Eskom’s power stations are clearly targeted.

In general, the NDP is positive regarding the contribution of South Africa’s mining sector. It said the country held significant global shares of minerals but over the past decade, domestic mining had failed to match the global growth trend in mineral exports. This was due to poor infrastructure “… alongside regulatory and policy frameworks that hinder investment”.

“South African can benefit greatly from Asia’s growing demand for commodities,” the report said. “To do so means improving water, transport and energy infrastructure, and providing greater policy and regulatory certainty to investors,” it said.

For more news and analysis on the coal and power industries of southern Africa, subscribe to Energy Publishing’s South African Coal Report.  South African Coal Report provides the most comprehensive analysis along with price, trade and tender information on this important coal producing region.  For more information please contact, call +61 7 3020 4000 or visit
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