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Eskom moves to penalise Glencore over 'poor' coal

Eskom says it’s seeking a R2 billion penalty from one of its suppliers due to poor quality coal.

The parastatal wants its power stations to perform better and its now seeking a penalty payment from Glencore's Optimum Coal Mine. Picture: Reinart Toerien/EWN.

JOHANNESBURG - Eskom says it's seeking a R2 billion penalty from one of its suppliers due to poor quality coal.

The ailing power utility released its annual results in Johannesburg today, saying it managed to raise R49,5 billion through external funding.

But the parastatal wants its power stations to perform better and its now seeking a penalty payment from Glencore's Optimum Coal Mine.

Eskom's acting CEO Brian Molefe says it wants Glencore to pay R2 billion in penalties for supplying poor quality coal which has resulted in shoddy performance.

Molefe says because Eskom is tied to a coal agreement, it cannot pull out if the coal quality deteriorates and now they want to get out of this arrangement where it links capital to certain mines.

He says poor quality coal is damaging equipment and affecting the overall performance of power plants.

At the same time, Molefe says it will revisit the issue of applying for further tariff hikes next year, but he insists the company is on the path to sustainability although his contract is up in less than three months.

GLENCORE DEFENDS THE QUALITY OF ITS COAL

Meanwhile, Glencore is disputing Eskom's claim that it is supplying poor quality coal.

The mine has started business rescue procedures as a result of its contract to supply coal to Eskom at a significantly lower cost.

Glencore's Optimum Mine is in financial trouble as a result of its agreement with Eskom, which was first signed in the 1980's and then renewed in the 1990's.

But spokesperson Gugulethu Maqetuka says this has nothing to do with the quality of its coal.

"The coal supplied by Optimum to Eskom is of highest quality and it's the quality the mine is capable of producing on a sustainable basis."

Eskom's acting CEO says the parastatal wants to exit the three decade contract because the utility no longer wants to invest in the capital expenditure of these mines and also because the quality of coal has deteriorated.

"When we committed to the cost plus arrangements we got very good quality coal and the deterioration of the coal has been contributing to the performance of our generating capacity."

'ESKOM IS NOT INSOLVENT'

At the same time, Eskom's acting CEO says while the utility has a cash flow gap, it is not insolvent.

The utility has managed to raise R49,5 billion, which will ease liquidity pressure but will be borrowing about R20 billion from domestic markets and international bonds.

Eskom's finances have been in the spotlight for the past year and with the recent change in leadership the utility has focused on cutting costs to ensure it can keep buying diesel to keep the lights on.

Molefe says they are dealing with municipalities that owe them money by pushing for pre-paid meters.

But he says after expenses Eskom is cash positive.

"Yes we have a cash flow gap because we have capital expenditure. We don't think Eskom is insolvent and it's not a growing concern."

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