An assessment of the future of coal producers in South Africa must comprise of two components, commercial and socio-economic sustainability. South Africa’s mining history shows that companies have predominantly preoccupied themselves with the former at the expense of the latter. It would have been an anathema a few decades ago to mention socioeconomic sustainability in the same sentence as commercial considerations. Mining companies faced both booms and busts at different stages of their lifespans owing to commercial viability influenced by mainly two factors: geology and the market. But times have changed. The sector currently faces challenges on both commercial and socioeconomic sustainability fronts. Yet these pitfalls cannot dim the light at the end of the tunnel.
Coal producers and government should develop a common understanding of the sector’s importance for domestic energy, source of export earnings and addressing unemployment, inequality and poverty. Commercially, there are three factors obscuring the way of progress. The first is the ongoing negative narrative about coal and its effects on the environment. No coal company can bury its head in the sand about this.
Clean energy is a matter of genuine concern and there must be continuous innovation. Equally, proponents of clean energy cannot ignore the fact that South Africa has an abundance of this resource that can address the country’s urgent energy and socio-economic needs in a way that renewables cannot at this stage. Secondly, a solid domestic market remains critical for coal producers. Central to this market is Eskom, which burnt 120 million tonnes (mt) of coal in 2018, almost half of South Africa’s 252mt output that year. Furthermore, the Integrated Resource Plan estimates coal consumption by Eskom to rise from 120mt in 2017 to 139mt by 2023, decline back to 120mt by 2033, and decline further to 90mt by 2050.
This starkly illustrates the importance of Eskom to domestic sustainability of coal production. Recent problems that have plagued Eskom have had an adverse effect on the sector’s certainty about its future sustainability. Key among these concerns is the inconsistency in pricing. There has to be a debate about transparent pricing that allows for producers to be sustainable while affording Eskom the possibility to lower the price of electricity in the long run. This is urgent given the fact that the Minerals Council South Africa estimates that the mining sector will shed 90 000 jobs as a result of the electricity price hikes.
Cheap and reliable energy would go a long way in guaranteeing mining and manufacturing jobs. South Africa’s coal reserves run the risk of being a wasted resource, especially as some of the majors divest from coal, in light of growing negativity about the resource. Taking into consideration the declining life of several coal mines, some of them would need to be replaced. The exit of the majors also presents an opportunity by opening the way for emerging miners who are not listed to enter this space and increase the country’s output.
Emerging miners have already demonstrated capability through their reliable supply to Eskom’s power stations. Critically, expanding their involvement reduces the risk currently posed to the security of supply by the dominance of a few companies. Finally, the international market continues to present opportunities for South Africa’s coal producers. There remains significant international demand for coal.
This demand has shifted from Europe to Asia and the upswing in coal-fired power stations can drive South African coal exports. At least 1 600 coal plants are planned or are under construction in 62 countries, according toGlobal Coal Plant Tracker published by Global Energy Monitor. It is estimated that this would expand the world’s coal-fired power capacity by 43%. The Minerals Council projects that coal has an export potential of 110 million tonnes, versus the current 75 million tonnes. At a socio-economic level, sustainability of the sector hinges on its support from government through policy certainty. The inclusive approach that Mining Charter III has adopted, by seeking to broaden beneficiaries of mining operations, has the potential to provide the requisite certainty if both government and the sector find mechanisms to implement the charter.
Unemployment, inequality and poverty remain a threat to South Africa’s long-term stability. Unrest and demands for jobs will remain a threat until there is a clear sense that there is a collective appreciation of the coal sector’s potential to address these triple challenges. In 2018, the sector recorded a 5.3% increase in the number of employees and employee earnings were up 10%. At 86 919 jobs, coal producers were collectively the third largest employer in mining in 2018. The Minerals Council projects that additional output of 35 million tonnes could raise employment by 11 600 people. There is no doubt that the black mineral can shine the light during hard economic times.