South Africa Utility Eskom Warns Coal Suppliers
South Africa Utility Eskom Warns Coal Suppliers
(Bloomberg) -- South Africa’s power utility warned coal suppliers it may halt purchases of the fuel because a nationwide lockdown to deal with the coronavirus pandemic has curtailed demand for electricity.
The force-majeure notice Eskom Holdings SOC Ltd. issued to miners follows a similar instruction to wind-power producers two weeks ago as the utility struggles to honor contractual agreements. It’s another sign of the unprecedented impact the disease is having on energy markets, with West Texas crude futures trading at a negative price on Monday because of oversupply.
Eskom has more than 50 days of supply of coal and may invoke force majeure because its storage space for stockpiles is limited, Eskom spokesman Sikonathi Mantshantsha said by phone Tuesday.
“It’s a precautionary note saying that we may ask them to halt supply,” he said.
Exxaro Resources Ltd. said late Monday it received letters calling force majeure on its coal-supply agreements to supply Eskom’s Medupi and Matimba power plants and will “vigorously defend its position in this matter and take the necessary action.” Seriti Resources Holdings Ltd., another major supplier to Eskom, didn’t immediately respond to an email seeking comment.
Wescoal Holdings Ltd. also received a notice from Eskom, indicating the reduced offtake could occur from April 16 until one month after the national lockdown has been completely lifted, the company said in a statement.
Exxaro’s shares fell 8.7% by 3:24 p.m. in Johannesburg, while Wescoal dropped 6.8%.
“This is a contractual matter between two parties,” the Department of Mineral Resources and Energy, which is responsible for Eskom, said in a response to questions over the Exxaro notice. It declined to comment further.
Eskom, which uses coal as its primary fuel source, has gone from struggling to prevent blackouts because of a lack of capacity, to a significant surplus that’s generating less revenue for the company. The utility expects its financial loss to grow because of the lockdown.
The government last year asked independent power producers and coal suppliers to cut their costs as a national duty to help the utility, which has 454 billion rand ($24 billion) of debt. Little action appeared to follow the plea.
Days after the March 27 start of the lockdown to control the spread of Covid-19, Eskom first used the clause -- commonly used when oil pipelines are blown up by militant groups or natural disasters make commodity deliveries impossible -- with wind producers that supply it with power.
The wind industry initially questioned the legality of the notice and said last week it anticipates benefiting from any government stimulus package to help it get on track. South African President Cyril Ramaphosa is set to announce economic relief measures later on Tuesday.
Wind energy supply has been curtailed for a couple of hours since the notice was served, Mantshantsha said.
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