WE HAVE AN ABUNDANCE OF COAL, WHY NOT USE IT?

It is often said that every difficulty signals an opportunity.

The challenges facing South Africa’s coal mining sector are not an exception to the dictum.

Three difficulties have the potential to give rise to opportunities in coal mining.

Firstly, the push to eliminate or dramatically reduce usage of coal as a primary energy source, ostensibly owing to environmental considerations, has become strong in some parts of the world.

In South Africa, major lobby groups have joined this campaign.

On the face of it, there is nothing wrong with such campaigns, be they motivated by ideology, science or economic interests.

As Mineral Resources Minister Gwede Mantashe remarked at a recent coal conference, there is a risk that negativity based on incorrect information could become prevailing wisdom and discourage investors.

There is no doubt that we need to implement an energy mix policy that includes renewable sources of energy.

This does not, however, mean that the anti-coal fundamentalists should get ahead of themselves by suggesting that we can summarily get rid of coal.

Rolling out an energy mix programme should be pragmatic.

Eskom has invested hundreds of billions of rands in new power stations. They must be used optimally, or it would mean the investment wasn’t worth it.

We should all welcome the development of technologies that can generate cleaner energy. For now though, we are endowed with coal we must use for the benefit of our country.

Coal mining companies employ just more than 86 000 people. This is not a small number in a country where more than a quarter of the population is unemployed.

The number of those employed in the sector is more than double if we include Eskom power plants and Sasol’s coal-to-fuel plants.

As a net exporter of coal, South Africa earns much-needed foreign exchange of more than R50 billion a year.

Neither such large numbers of jobs nor foreign exchange can be realised from renewables, which are typically not labour intensive and may not be able to generate a sustainable baseload.

South Africa’s coal resources are an important comparative advantage.

The criticism against coal shouldn’t go to waste, it should spur innovation on environmentally healthy methods of using the mineral.

The second challenge facing the domestic coal sector is Eskom’s inefficient procurement of the fuel.

Eskom pays different prices to different suppliers for the same quantity and quality of coal.

The discretion procurement managers have makes it difficult for Eskom to source efficiently and transparently.

An investigation by the National Treasury found a number of irregularities in some coal contracts.

For South Africa to benefit from its coal endowment in a way that leads to relatively cheap electricity, Eskom must consider transparent index pricing.

How much each supplier pays should have nothing to do with their bargaining power with Eskom officials.

It should be about what the market, through the index, has determined for a particular quality and quantity of coal.

The only factor that could cause deviation from the index is transport costs.

The Eskom coal index should be relevant for the domestic market only.

It is disheartening to read news reports about Eskom power stations running on low stock levels when many producers have huge stockpiles.

Because Eskom is a big company, it is reasonable to expect that it will experience operational challenges.

But access to coal suitable for its power stations should never be one of those challenges.

The third challenge is the issue of competition and the opportunity that comes with it.

Among the major criticisms that big companies face in South Africa is overconcentration, lack of competition and lip service to transformation. Fortunately, unlike other industries, the coal sector is not overly concentrated.

More needs to be done to introduce new players, ensure that companies within the sector can compete and prevent potential overconcentration.

In this way, we can boost public legitimacy of coal mining in South Africa.

Menar Holding