Coal Roadmap Forecasts Thermal Coal Shortage

BRISBANE, Australia - Sept. 3, 2013 - PRLog -- There was very little fanfare around the recent publication of the South African Coal Roadmap (SACRM), a document that is neither policy-setting, nor has the convincing support of the South African government.

This is notwithstanding the critical issues the SACRM has pin-pointed regarding the future supply of coal in South Africa.

“Not really news,” said Investec Securities in a note to clients. “But official confirmation doesn’t hurt,” it said of the SACRM’s findings that South Africa’s power utility, Eskom, faced a 60mtpa domestic coal supply deficit from 2015 onwards.

The SACRM also extended its ambit beyond South Africa’s immediately domestic supply issues.

It called for policy certainty around the possibility that coal could be deemed a strategic resource, a development that could see the South African government impose price and quality quotas to coal’s export.

It also concluded there was a need to re-examine the ability of the country to meet ambitious nuclear power targets.

As a functioning document, however, the SACRM appears to have little leverage other than to set down the position of the South African coal industry on the need for future foreign investment, which is becoming urgent.

The US Export-Import Bank, the World Bank, and the European Investment Bank recently dropped support for new coal burning power plants in developing countries having spent $60b on such projects in the last five years.

There are an estimated 1,200 coal-fired plants proposed globally with three quarter of those planned for China and India, according to report by Bloomberg News. Sadly, the banks’ diminishing support for coal-fired power is only likely to hit African countries, such as South Africa, the hardest.

Ian Hall, chairman of the steering committee of the SARCM said in an interview with the South African Coal Report that the SACRM, which was almost two years in the making, was never intended to formulate policy. “The government was adamant that this was to inform, including those who formulate policy,” he said.

Interestingly, however, the steering committee and the SACRM board consists of government and union representatives, as well as the industry itself.

Does this mean the SACRM’s observation that “… the further nuclear build plan specified under IRP2010 [Integrated Resource Plan] is also considered ambitious in terms of funding and skills requirements …” has tacit government approval?

“It’s an interesting question. Certainly government representatives are there at our meetings, but they are not always the minister and the upper echelons where policy formulation is made,” said Hall. “The roadmap doesn’t necessarily reflect all the views of everyone,” he says.

All eyes then are on the documents that would seem to matter, at least from a coal policy formulation point of view.

One such document is an updated IRP2010. The IRP was first published in 2010 and set down targets for power generation and their sources, including a heavy emphasis on renewable and nuclear energy comprising 43% of total power generation by 2030, and a reduction in reliance on coal-fired power stations.

However, there are serious questions as to whether South Africa can meet its targets, especially for nuclear energy, the first due in 2023, according to the IRP2010.

South Africa has not yet called for tenders on its nuclear programme, even though the rule of thumb is that it takes 10 years to develop a nuclear installation, and which could cost between R300b ($30.5b) to R1 trillion ($100b).

“Unless the nuclear and renewables builds are moved ahead rapidly, alternative sources of base load electricity will be required,” the SACRM said in one of its conclusions.

The other important document is the proposed amendments to the Minerals and Petroleum Resources Development Act (MPRDA). A key element of the MPRDA amendments is a proposal that certain minerals, such as coal, be deemed strategic if deemed crucial to assisting downstream industry.

A banker who asked to remain anonymous commented that the SACRM was not dissimilar to the National Development Plan (NDP), a document drafted by business persons, technocrats and academics, and which also has the inprimatur of government’s National Planning Commission.

“It has good intentions at heart but the changes to the MPRDA fly in the face of the NDP as it does the SACRM,” the banker said.

Changes to the MPRDA which would allow the minister the discretion to declare coal a strategic asset – and thereby give government greater control over the industry – has been heavily criticised by shadow mines minister, James Lorimer, an MP for the Democratic Alliance.

“Exporting coal is where mining companies make higher profits. Further restrictions under the proposed MPRDA Amendment Bill, on top of an already unfriendly legislative and regulatory climate, mean that major coal mining companies are looking to other countries to make new investments, rather than building large, new mines that South Africa needs,” he said.

Said the banking source: “When we get together to look at what we can do in the coal space, we’re just not seeing the projects. They aren’t there”.

Mike Rossouw, chairman of the Energy Intensive Users Group (EIUG), an organisation that represents Eskom’s top 20 clients including Anglo American and Glencore Xstrata, said regulatory issues were not given appropriate airing in the SACRM.

“It is comprehensive in that it lays out the potential coal future for South Africa, but it doesn’t sufficiently address the issues that constrain coal supply,” he said.

Lorimer also introduced another controversial element to the release of the SACRM saying its much-delayed publication was related to government interference.

“Indications that the release of the SACRM was delayed because government wanted to massage some of its conclusions away from criticism of its policies raise suspicion that government is divorced from reality in the mining sector,” he said.

The MPRDA amendment bill was tabled in South Africa’s parliament earlier this year and is expected to take effect within the next 12 months.

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