Eskom is playing hardball with suppliers

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 issued to miners follows a similar instruction to wind-power producers two weeks ago as the utility struggles to honour contractual agreements. It’s another sign of the unprecedented impact the disease is having on energy markets, with crude oil 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 on Tuesday.

“It’s a precautionary note saying that we may ask them to halt supply,” he said.

Exxaro Resources said late on Monday that 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, another major supplier to Eskom, didn’t immediately respond to an e-mail seeking comment.

“This is a contractual matter between two parties,” the department of mineral resources & energy, which is responsible for Eskom, said in a response to questions over the Exxaro notice. It declined to comment further.

Losses to grow

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 R454-billion of debt. Little action appeared to follow the plea.

Days after the 27 March 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. 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.  — Reported by Paul Burkhardt, (c) 2020 Bloomberg LP