Eskom facing a critical coal crisis

Information received by EE Publishers indicates that the coal crisis at Eskom is worsening, with at least four of Eskom’s 15 coal-fired power stations now having less than 10 days of coal on hand.

More stations may possibly be affected.

Eskom has advised EE Publishers that it requires an additional 1.3 million tons of coal per month to recover all power stations to the required level of stock by the end of its current financial year, 31 March 2019.

However, Eskom’s emergency plan to commence trucking coal from Medupi in August 2018 to its power stations in Mpumalanga appear to have stalled, in the face of various objections raised by municipalities.

Eskom also advised that while transportation of coal by rail is its preferred option, development work with Transnet Freight Rail is underway – and rail transfer of coal from Medupi has not commenced.

The emerging coal crisis was first revealed in an article by EE Publishers entitled “Inside the coal supply crisis at Eskom” in April 2018.

As a result of the article, Eskom advised that seven of its coal-fired power stations in Mpumalanga faced shortages – and that coal was being transported by truck from other Eskom power stations in to alleviate the problem.

Eskom reports

Eskom CEO Phakamani Hadebe reported to Parliament on 28 August that nine of its power stations in Mpumalanga had “very low coal stockpile levels”, and that this had been reported to NERSA.

Hadebe added that “to manage this coal during the rainy season is going to be a huge challenge”.

Eskom also indicated to NERSA that it is in the implementation phase of moving coal from Medupi to Kusile and Kendal power stations.

Eskom stated that two major tender enquiries issued in 2017 are at negotiation stage, and as such no contracts have been concluded as yet.

It added that 18 million tons of coal has been contracted from urgent requests for proposals issued in 2017 and 2018, and that a further 12 contracts are in the pipeline to be concluded following Eskom board approvals in August 2018.

Eskom believes that these contracts will stop the decline in coal stock levels, which was aggravated by Tegeta going under business rescue and its mines failing to deliver coal.

The Tegeta failure alone is said to have resulted in a shortfall of 713,000 tons per month to affected power stations – Hendrina, Komati, and Majuba – and resulted in Eskom having to transfer coal away from power stations with healthy stock levels.

It appears, however, that Eskom may have set over-ambitious price targets and requirements in its coal procurement process.

Eskom now acknowledges that the exporting of Eskom-grade coal, and the current export spot price of coal, is making it difficult for Eskom to conclude coal contracts within its affordability limits.

Stockpile

Eskom does have stockpiles of about 20 million tons of coal at Medupi as a result of power plant’s late completion and Eskom’s “take-or-pay” coal supply contract with Exxaro, though.

It is understood that the price tag of the coal’s road transport alone would cost Eskom about R500 per ton above the approximately R300-to-R350 per ton that Eskom has already paid for the coal.

Making matters worse is that Eskom’s plan to commence trucking coal from Medupi in August 2018 was hit by objections raised by municipalities – which included dirt-road construction, road damage, traffic congestion, and safety issues.

This has resulted in the continued decline in its coal stockpiles at Mpumalanga power stations.

It is also reported that fraud and scams in respect of coal deliveries are rife, such as under-deliveries, discard coal deliveries, and empty truck deliveries.

Furthermore, in calculating the stock days available in a coal stockpile, the standard burn rate of a power station may be used based on the rated capacity of the power station.

Alternatively, a reduced burn rate may be used when a power station is being operated at a lower capacity than rated, based on the actual burn rate for the last few days.

This then “overestimates” how long stock will last.

This places the country in a risky position, as power stations running out of coal could lead to load shedding – which is damaging to the economy and citizens.

While Eskom acknowledges that “the current situation is not ideal”, it believes that “barring unforeseen events and circumstances, the current coal supply plan and forecast is for no stations to run out of coal”.

The weather during the approaching rainy season may be the deciding factor, however.

Now read: Eskom’s plan to get rid of 10,000 employees

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Eskom facing a critical coal crisis