Government strategy for the future of the South African coal industry
I am sure you will agree with me that there is something satisfying in the extreme when two important mining conferences take place in one country in a space of seven days. If this does not talk to the importance of this country as a serious player in the mining environment, I don’t know what does.
Ladies and gentleman,
It is an honour to address you today as you have gathered to ponder important questions on the future of the resource called coal the resource that has been at the heart of modern day industry and was the driving force of the industrial revolution.
We are centuries from the industrial revolution yet the story of coal is much like the story of mining in this country. Many had thought that coal has lost its pride of place as one of the key energy drivers but it has survived and stood the test of time. The fact that the future may hold different opportunities and challenges is beyond doubt. Our mining industry has been called the sunset industry and it seems the opposite is true.
There is heightened interest in matters mining. Just looking around in the audience, I feel that I am justified in saying that. I believe most of you here have an interest in mining in general and in coal in particular.
We are also grateful that the organisers of this conference saw it fit to bring it to this country thus further showing faith in our country and the mining industry.
Coal is and will continue playing a vital role in South African overall energy mix. It accounts for 70% of primary energy consumption, 93% of electricity generation and 30% of petroleum liquid fuels. South Africa ranks seventh and fifth globally in terms of coal production and exports respectively.
In 2009 South Africa produced a total of 249 million ton of thermal coal and of this, 74 percent for local consumption while the remainder was destined for export markets.
While exports play an important role in the economy of the country, for example in 2009, coal was South Africa’s fourth largest mining export, with 17.5% contribution to mining revenues, generating over R31 billion in foreign exchange – we need to ask how come we are bigger on exports and not on productions? Is there an anomaly there and if there is, how should we remedy the situation?
Whatever the answer is, it should not detract the government working with all the social partners in sparing no effort in trying to move millions of our people out of the morass of poverty.
I will be accused of being contradictory and maybe there is nothing wrong in the contradiction on its own rather how we balance needs of the various communities – business and social communities. I am acutely aware of the contribution of coal mining to employment with the sector being the third largest employer in mining with 70 792 employees.
Programme director,
Like everything else, coal is a finite resource. After years and years of mining, the quantity and quality of the reserves in this country is steadily declining. In 2009, South Africa’s coal reserves stood at just over 30 billion tons, accounting for nearly six percent of the world’s reserves.
At the current production rate of 250 million tons per year this translates into 100 years life of the reserves. The Witbank and Highveld coalfields still have significant coal reserves but even these will be reaching their peak in not too distant a future.
However we are heartened by the fact that exploration activities taking place in both Mpumalanga and Waterberg regions point to the fact that additional reserves may be available in these areas and that will help sustain the coal mining industry for years.
This time next year we should be in the position to give you a clearer picture. We have tasked the Council for Geo-Science to conduct a study to this effect and the report should be available this year.
But we cannot only pin our hopes and indeed the fate of the country on one commodity. It therefore behooves government and industry to invest time and energy in finding alternative ways for energy generation. Without ample supply of energy, the goal of creating a decent life for all our people may be in vain.
To this end, South Africa is also looking to changing its energy mix resulting in the shift from overreliance on coal as an energy source. Government has chosen a balance option for South Africa’s electricity generation by 2030 which will be sourced from coal (48%), renewable energy (16%), nuclear (14%) and a combination of imported hydro, gas and pump storage (22%). The implementation of alternative energy sources, such as renewable energy and the reduced dependency on coal should extend the life of South Africa’s resources.
Coal beneficiation
One of the agendas that government will be driving rather mercilessly this year and into the future is the insistence on beneficiation of the minerals that are mined on our shores. This will not be done in an antagonistic fashion but I do hope that this industry and this conference looks at some of the possible beneficiation.
We need to ask how do we widen the net where coal will be used for the benefit of local industry. The industries that coal can play a lot more positive role range from the chemical processing of other minerals such as steel making, cement manufacturing and other industrial processes.
Talking of coal beneficiation should talk to something a lot more than the current reference to the washing of coal to reduce impurities to get the desired quality for a specific market.
We also need to find creative and long lasting solution to the negative impact of coal mining. One of the challenges that we face as a country is waste disposal and land release after mining. As a consequence, we face a particular challenge in the face of acid mine drainage which is regarded as one of the greatest global threats to the environment after ozone depletion and global warming.
Our coal processing sector currently generates more than 12 million tons of ultrafine slurry per annum, the majority of which is disposed of in slimes dams.
These ultrafine coal wastes contain sulphide-bearing minerals, particularly pyrite, which oxidize and give rise to acid rock drainage (ARD under conventional disposal conditions. The release of salt and heavy metal bearing ARD to the surrounding environment results in extensive and prolonged contamination of local ground and surface waters.
It is therefore critical to find cleaner technologies for the future. Energy generation using coal also results in the emission of carbon dioxide thus negatively affecting the environment and contributing to global warming and climate change.
As signatories to a number of international protocols and treaties on reducing greenhouse emissions, we are committed to creating a safe and healthy sustainable environment.
The President of the country committed the country during the global climate change conference in Copenhagen, that South Africa would reduce carbon emissions by 34% in 2020, and by 42% in 2025, depending on financial and technological support from the developed countries.
Furthermore, we are hosting the COP (Committee of Parties) 17 and the Kyoto Protocol (CMP 7) in November/December this year. To consolidate, advance and fortify primary arrangement, the Inter-Ministerial Committee (IMC) on Climate Change will be reconvened to oversee the preparations for the conference. The Department of Environmental Affairs is currently working on climate change policy, to be released during this year.
Our need to grow this economy through sustained and transformed cannot therefore be in the way of also being a responsible global citizen. These are some of the challenges I hope conference will deal with in the many sessions to come.
Government’s commitment to free market is beyond doubt. But our commitment to the betterment of the society is also beyond reproach. It goes without saying that a balance has to be found between pursuing the principles of free market with taking into account the needs of the country.
The growth in electricity demand in line with the growth in the South African economy over the past several years has resulted in the erosion of Eskom’s generation reserves resulting in a shortfall in coal supply. This has been compounded by the global increase in demand for coal, with countries such as India and China showing so much interest in South African Coal.
The lack of regulation of the coal mining industry resulted in a shift in the power balance away from the national interest to that of the shareholders of the mining companies and Eskom losing some share of its historical market. This has also impacted in the quantity, quality and cost of coal supplied to Eskom.
It is not government intention to enter the minefield of specifying all the processes and it is our fervent hope that industry will recognise the particular challenge and work with us. As a regulator, we find that it is much easier to work in a collective though we reserve the right to take corrective measures should the situation demand it.
This also goes for the transformation – or the lack of in the industry in general. While we accept that mining plays a vital role in the economy of the country, we also argue that transformation is important in the achieving the socio-political objectives of the nation. It is not just about keeping the score but it is an business imperative that talking to the way we do business, how we invest in skills, creating a pool of engineers.
Transformation within the sector has been very slow with nine percent BEE ownership achieved by 2009 against a target of 15%.
In the coal industry can be seen in initiatives such as the Coal Industry Task Team (CITT) where real junior black owned companies are struggling to access the export market through a government initiative that was meant for Black owned junior companies. CITT is still dominated by white males with pockets of black males and even lesser number of females.
Again, we have the means and the authority to force through changes but it would be more helpful if companies followed the stipulations of the Charter and the reporting mechanism that it makes provisions for. The few black individuals’ who take part representing companies whose majority shareholding is in the hands of white companies.
We have also noted that companies that no longer fit the “junior” definition are holding on to the allocations perpetually to the exclusion of new entrants. This defeats the purpose of the exercise and we will not hesitate to ensure that deserving companies are not excluded.
Earlier I spoke of the changes in weather patterns which experts say is partly due to our refusal to take care of the environment. The recent floods Down Under have affected production of coal and caused supply disruptions which had an impact on coal prices. Coal production in New South Wales and Queensland in Australia has dropped an estimated 20 percent to 30 percent after the La Nina weather system brought rain unusually early to mining regions globally since November 2010.
Countries such as India used this opportunity to boost coal purchases from South Africa as demand for the fuel rose and floods in Australia disrupted supplies. According to RBCT statistics, India bought almost a third of South Africa’s Richards Bay’s exports in 2010; South Africa shipped 59 percent of the fuel to Asia last year and 25 percent to Europe. Average prices for coal shipped through RBCT was at $126.4/ton on 7 January, after rising 60 percent last year, according to data from IHS McCloskey.
Is this what South Africa needs? What will be the effect of this increase in export be on our local market? Yet what is the effect on the general economy?
Some will see an opportunity of making more money on the back of the Australian misfortunes. Unfortunately that opportunity may very well be a serious threat to our supplies for electricity generation and being part of the uptake of the economy following the recession. We will be monitoring the situation closely because we will not allow a situation that will negate or impact negatively on the national project of economic recovery.
As government, we also want to see a situation whereby the transportation of coal does not result in the impairment of the road infrastructure. To this end, the transport parastatal is committing to re-investing in rail haulage to ease the pressures on the roads. We are by no means saying that there is no role for road freight in this country but the damage caused on the infrastructure may well end up as Pyrrhic victory for us.
The Waterberg coalfield in Limpopo province presents us with a chance of another largely untapped coalfield to be exploited. The major problem with the Waterberg coalfield is the geographical location (far from industrialised locations) with very poor infrastructure. There is shortage of water which is important is the beneficiation of coal and transportation facilities are limited. Huge investment in infrastructure especially the railways are critical and through our interaction with the relevant departments, we urge them to make this investment for the good of the country’s economy.
Programme director,
Conference will be deliberating on a number of issues in the two days. The one thing worth stressing is: South Africa is open for business. But having said that, we have unique challenges and demands that we place on those who want to do business with us. It is for the good of the country and we believe those who engage us with open hearts, they will find that the requirements are not as onerous as they have been made out to be.
We are committed to ensure an enabling environment for those who want to do business here and if we fall short, we have robust engagement with industry and we should be able to exchange views and narrow down areas of divergence.
I thank you for your attention!!
Source: Department of Mineral Resources
