January 30, 2008 / 9:43 AM / 12 years ago

UPDATE 1-Eskom needs 15mt coal in 3 mths not 5.4mt

(Adds detail)

By Jackie Cowhig

JOHANNESBURG, Jan 30 (Reuters) - South African state utility Eskom [ESCJ.UL] needs 15 million tonnes of additional coal over the next three months including 5.4 million tonnes immediately, South African Chamber of Mines Chief Executive Zoli Diliza told Reuters on Wednesday.

“The task force committee is working out how we can assist with finding the additional 15 million tonnes which Eskom needs in the next three months,” Diliza said.

“We are looking at the issue as one of national importance. Everybody is coming together to resolve it,” he added.

Asked to comment on suggestions in the press that South African producers have focused on more lucrative export markets instead of ensuring domestic supply, Zili said: “These people have not done their background checks. They need to look at the history of these power plants - they were not set up to burn export coal but the discard, lower-grade material which was produced as a result of export coal mining.”

Industry sources said on Monday that Eskom needed 5.4 million tonnes over three months. That news caused a spike in coal derivatives and physical prices of several dollars per tonne.

Diliza said South Africa’s major coal producers have formed a joint task force with the Chamber to find the extra coal Eskom needs and work in the national interest to resolve the crisis.

DOABLE

Asked if it would be difficult for producers to find an extra 15 million tonnes at such short notice, Diliza said: “It is doable.”

Producers will have to divert to Eskom run-of-mine coal which would have been washed to upgrade to export quality material in order to meet this domestic shortfall, coal industry sources said.

South Africa exported around 66 million tonnes of coal in 2007. Exports are expected to average between 5 and 6 million tonnes a month in 2008.

There is a large difference in quality between export coal of typically just below 6,000kc/kg energy content and much lower energy content, higher ash domestic grade coal consumed by Eskom.

Eskom’s boilers are unable to consume export grade coal. If any export grade coal were to be obtained as an emergency measure by Eskom, it would need to be blended with domestic coal to be usable.

However, producers can divert run-of-mine coal which, before washing, is similar enough to Eskom grade coal to be used as it is, industry sources said.

The quantity of coal Eskom is seeking is so large that it must impact exports, whether producers are compelled to delay or cancel shipments or to try and buy export coal on the free market to maintain deliveries while diverting coal from the mines to Eskom, the sources said. (Editing by James Jukwey)

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