Emergency+coal+boost+will+cost+Eskom+R11bn,+M+le+Roux,+B+Day



=**Emergency coal boost will cost Eskom R11bn**=


 * Mathabo le Roux, Business Day, 15 February 2008**

ESKOM will buy an additional 45-million tons of coal at significant extra cost to replenish depleted coal stockpiles, a plan expected to have a ripple effect on generating costs and electricity prices.

The emergency move could cost the utility as much as R11bn, but Eskom says it has no choice if it is to make headway in relieving SA’s power crisis.

In an update on the power situation yesterday, Eskom executive Brian Dames said addressing the utility’s coal problems was the highest priority now.

The 45-million tons of coal would be over and above Eskom’s running requirements, which are 125-million tons a year, and would be added systematically over the next two years in a bid to raise coal reserves at power stations to at least 20 days’ supply.

Dames, who is the new head of Eskom’s primary energy, generation and enterprise cluster, admitted the procurement would have a significant effect on operating costs, giving impetus to higher electricity prices.

“The coal is going to cost much more than we are paying contractors, so it will definitely have an effect on generating costs. We still need to inform the regulator (the National Energy Regulator of SA),” he said.

Under contract, Eskom pays on average R100 a ton for coal. But the 45-million additional tons would have to be bought at export prices of R150-R250 a ton, Dames said. This means the additional coal could cost as much as R11bn.

But Eskom had no other option, he said. “Coal is a very real threat. We do not have a choice. It is the right thing to do.”

Eskom’s inability to meet national demand during the past month has been ascribed in part to critically low coal reserves, and problems with coal quality. Current stockpiles are at 10 days’ supply on average, with some power stations’ reserves as low as two days. The practice in the past was to maintain stockpiles at 20-32 days’ supply.

While the purchase plan had a two-year timeframe, Dames said Eskom needed to move swiftly over the next three to five months, to bring 6-million tons of coal to plant to get stockpiles back to satisfactory levels.

This would be a formidable logistical challenge, as most of the coal would have to be freighted by road. Most of Eskom’s plants are in Mpumalanga, where roads are in a notoriously poor state from the constant traffic of heavy coal lorries. But Eskom CE Jacob Maroga said the utility was thrashing out logistics with Transnet and the transport and public enterprises departments.

Maroga denied that Eskom ran down stockpiles to keep working capital down, saying there was a mismatch between supply contracts and the need to burn more coal to feed increasing demand. Talks with the Chamber of Mines on supply of additional coal and transport had yielded a positive response, he said.

It emerged yesterday that Eskom’s capital expenditure programme was running into price problems. Maroga said the tendered cost of equipment such as turbines and boilers exceeded estimates by about 30%. Civil engineering tenders were “an even bigger shock”, overshooting estimates as much as 50%.

This has led to some delays in the awarding of tenders as the utility tried to negotiate more competitive contracts.

Maroga said power rationing, which saw large industrial users agree to use 90% of their normal requirements, had largely stabilised the power system and there had been no need for load-shedding since February 4.

The rationing would continue until July, but Eskom hoped to have its power plan, which would include quotas and incentives for reduced usage, in place after that.


 * From: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A706989**

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