Portfolio Committee on Mineral Resources

Transcription

1 Portfolio Committee on Mineral Resources Commentary on Mineral and Petroleum Resources Development Amendment Bill September 2013

2 Eskom is required to secure Mt of coal over the next 40 years Eskom Coal Supply for the next 40 years Potential coal supplies Mt Waterberg Unidentified 2100 Mt Kusile Coal Requirement Life Extensions Contracted Eskom is on average 80% contracted for the next 5 years price stability, volume and quality predictability Eskom s un-contracted coal supply can be made up by successful conclusion of: The Waterberg Project Purchasing coal for Kusile Life extension (cost plus agreements) Successful conclusion of contracts with Black Emerging Miners Implementing policy changes for the dedication of coal for power generation

3 There are several challenges in securing coal for Eskom Eskom Challenges Ageing of existing tied collieries as well as under-performance of cost plus mines has resulted in increased purchases of top-up coal from medium term supplies Increased demand for coal generated electricity from existing power stations due to delays in alternative generation solutions resulting in a need for new coal sources beyond existing footprint Increasing load factors on coal fired power stations resulting in a need for increased qualities and consistency of coal Coal Industry Challenges The South African coal sector requires substantial investment and recapitalisation to meet both domestic and export requirements as the current mining capacity will not meet the growing demand Input mining costs within the coal mining industry have been much higher than CPI and are increasing Timing of domestic coal requirements is not aligned with the mining houses; the trend of the sector is to only invest in mines for export and not for local supply The trending of prices from the residual (short-term) market to international export prices Higher demand for lower quality coal from the Indian and Asian markets has created direct competition for existing and new coal sources that were previously only suitable for domestic use Stricter environmental compliance for coal mining has reduced the quantity of coal planned for supply to Eskom 3

4 Summary of proposed amendments to the Mineral and Petroleum Resources and Development Amendment Bill ( Amendment Bill ) The Amendment Bill must promote economic growth, energy security and mineral and petroleum resources development in the Republic of South Africa. The Amendment Bill should seek to manage the national coal resource for domestic energy use with due consideration of price, volume, timing and quality. Coal must be declared a strategic mineral that is required to firstly support domestic energy security and secondly to ensure that South Africa can maximise its export potential once domestic energy security is assured. The Amendment Bill should accommodate new technology investigation and/ or research. Mechanisms need to be introduced in the Amendment Bill that allows for the African Exploration Mining Company to partner with other State Owned Entities in the identification of mining assets for power generation. 4

5 The security of coal supply needs to be ensured to protect our national power-generation interests Area of concern Coal supply shortages Maximisation of utilisation of our key coalfields Risks involved in securing coal for power generation Reasons for concern Shortages of up to 40 Mtpa of coal are to be expected post 2018 Rail export capacity expected to increase due to TFR s expansion plans SA steam coal exports continue to favour the Asian market, with major demand originating from India for Eskom grade coal Market has been consolidated into 4 major suppliers Large capital investments are required in order to meet coal demands in the future The Waterberg and Mpumalanga regions are not being effectively managed to ensure domestic security of coal Potential RB3 export risk will decrease availability to Mt (Eskom s requirement is Mt) 120 Mtpa of new mine capacity needs to be opened in the next 6 years Coal quality requirements as per the Minimum specification for Eskom power stations indicates that Mt of coal cannot be sourced in Mpumalanga Emerging environmental trends could sterilise 5-30% of the resources resulting in a maximum Mt loss The Amendment Bill should include the following : Coal should be declared a strategic resource to support domestic energy security and ensure SA can maximise its export potential once domestic energy security is assured Ensure the nation s mineral and petroleum resources are developed in an orderly an economically sustainable manner Incorporate a structure to assist the Minister in evaluations in order to allow the trading of shares in listed companies which hold Prospecting and Mining Rights Ensure that Eskom has first right of refusal on large coal resources which were previously earmarked for domestic use Ensure that the DMR should enforce domestic coal supply obligations contained in the Mining Works Programs of existing mining rights holders Mechanisms need to be found to limit speculation on the costs of land for resources that are of strategic importance to domestic supply 5

6 Pricing of coal should be based on efficient production costs SA is a developing nation and electricity is an enabler for growth Thus, Eskom believes that the price of domestic coal should be based on efficient production costs plus a risk-adjusted return, instead of being indexed in any way to global or thermal coal prices, Export Parity prices, a market price or a global coal price Current Prices ex RBCT continue on a downward trend due to oversupply. Coal Prices ex Richards Bay: NAR free on board (FOB) 2013 USD/t Shipped Volumes via RBCT in 2013 (Mt) and ZAR/USD historical exchange rates ,000 kcal/kg 5,500 kcal/kg J F M A M J J A ZAR/USD exchange rate (RHS) J F M A RBCT Shipped voumes (Mt) (LHS) 4.35 M 5.30 J 6.16 J Source: IHS McCloskey Source: RBCT & SARB Medium term Prices Long term Prices Estimates of Richards Bay FOB prices kcal/kg (USD/t) Nominal IHS McCloskey Wood Mackenzie Estimates of Richards Bay FOB prices kcal/kg (USD/t) Nominal Minimum Maximum Minimum Maximum Coal as a resource accounts for 95% of SA s local power generation Electricity prices within the country are regulated; thus, allowing coal prices to be determined by the market, exposes electricity prices to international coal market prices, which are higher, thereby driving up the cost of electricity locally 6

7 Timing of compliance periods and expected timelines for approval need to be clearly stipulated Issues regarding timing Issue Compliance periods Expected timelines for approval Description Certain individuals may be granted far lengthier periods to comply, or potentially be penalised unfairly due to significantly shorter periods Its is of critical importance that coal is declared as a strategic mineral. The timelines for the approval of this declaration are not clearly stipulated. Clear timelines have been removed in favour of prescribed periods, which allows for inconsistencies between different right holders and applicants There is a need for specific and reasonable timelines to avoid parties withholding mineral resources unreasonably DMR should specify expected timelines, criteria and the process that the Minister will adopt to declare certain minerals as strategic 7

8 Previous rights holders need to be held accountable from an environmental, health and safety perspective Issues regarding the liability of previous rights holders Issue Quantification of liability Financial provision Description In relation to section 43 and the enhanced regulatory framework on the liability of mining and prospecting rights holders, which endure indefinitely notwithstanding the issuing of a closure certificate by the Minister can prove problematic for Eskom as it will be difficult to quantify its liability on cost-plus coal supply contracts as the liability period will not be certain It is unclear as to what the Bill aims to achieve by the substitution of section 6 with the provision that the Minister when issuing a certificate, he or she may retain any portion of such financial provision for latent and residual safety, health or environmental impact which may become known in the future for a period of 20 years after issuing a closure certificate if the holder of a prospecting right, mining right, retention permit, mining permit, or previous holder of an old order right or previous owner of works that has ceased to exist, remains responsible for any environmental liability, pollution, ecological degradation, the pumping and treatment of extraneous water, compliance notwithstanding the issuing of a closure certificate Previous rights holders are enabled to avoid their longterm environmental obligations and how much of the liability is inherited The Bill should thus be explicit as to who is responsible for potential liabilities There should be no retention after the closure certificate is issued and further that the rehabilitation fund should be aligned with the Income Tax Act as far as any Trust Fund for rehabilitation is concerned. 8

9 An awards system that takes into account the order of processing should be adopted Issues regarding the order of processing Issue Description It is unclear whether or not the Bill intends Clarity on to remove the FIFO ( First in, First Out ) removal of principle entirely from the MPRDA. If it FIFO from bill does, this would fundamentally alter South Require Africa s supporting mineral information licensing regime, to which support has the followed requested the changes FIFO principle to for many the bill on years the right (i.e. information to support the end of page 6 and half of page 7 of Prior Eskom s Comments Although applications the Draft can be made at any applications Mineral and time, Petroleum the bill does Resources not indicate what not accepted Development happens Amendment when a prior Bill 2013 ) application is or rejected pending but has not been accepted or rejected as yet The Bill should include evaluation criteria that will be used when two or more competing applications are received Applications received on the same day should be dealt with in order of receipt by the DMR website, or in order of receipt by the relevant DMR office in the event of the website being unable to receive the application It needs to be made clear how the Minister will determine / decide on who will get the rights out of the numerous applications A structure needs to be established to assist the Minister in evaluations The previous provisions of section 9 regarding the order of processing should be reinstated 9