It’s the coal, stupid

by Sep 13, 2012Magazine

its-coal-stupidSouth AfrIca’s coal-fuelled development path delivers jobs that are less than decent and results in massively negative externalities – water contamination, air pollution, loss of farmland and community commons and livelihoods. With theexception of Sasol, coal is still overwhelmingly in the hands of transnationalsand the proceeds of the core of our economic activity thus fly the coop to foreign bank accounts.

Although gold and diamonds are the bedrock of South Africa’s economy, mining them would have been impossible without coal. Indeed, the first coal-fired power stations were built by mining companies and nearly all coal mines were owned by gold mining houses for the first part of the last century.

Most companies on the JSE may still be white owned and the total transformation of the mining sector may be some way off, but the black elite are starting to make their mark either through wholly-owned companies or through shareholdings in large corporations. The cards are therefore still stacked against BEE players.

Of the five mining companies that dominate coal production, Anglo Coal is still the largest (59.4 Mta), followed by Exxaro (48 Mta), which was formed from an empowerment merger between Eyesizwe and some of Iscor and Kumba’s assets. Exxaro is the major developer of the latest frontier in coal extraction (despite looming water crises) in the Waterberg region. Sasol is the third largestproducer (44 Mta), followed by BHP Billiton, itself one of the world’s coal giants, althoughits production dropped to 31.7 Mta after the BEE-driven sale of Optimum Mine in 2008 in a merger with Glencore. Xtrata Coal SA is the fifth

largest (20 Mta).. A proposed merger between Xstrata and Glencore could make it a coal mining giant, controlling over half of the main export harbour. Parastatal Transnet is currently spending R37bn to upgrade the coal railway line to the harbour.

The contradiction between short-term interests and long-term prosperity is obvious in the coal market. Coal still fuels over 70 percent of our energy consumption and over 90 percent of electricity use, with petroleum making up much of the rest, despite the environmental devastation both create. Questions remain about why the government has chosen to perpetuate this path by building two of the world’s biggest coal-fired power plants – Medupi and Kusile – when it is already under global pressure to reduce its greenhouse gas emissions and ranked at the thirteenth highest in the world and the highest in Africa. Sasolburg, established for the first synfuel plant globally, consumes 30 percent of our electricity and is the dirtiest place in the world in terms of carbon emissions. Despite our enormous potential for wind and solar energy generation, and notwithstanding our ambitious promises to reduce CO2 by 2030, the government and Eskom argue that we are entitled to play catch-up in the development stakes by benefiting from our cheap coal. We are the world’s seventh biggest coal producer, producing about 250 million tons annually, of which a quarter is exported or R30bn in foreign exchange earnings per annum.

This argument is amplified by the big smelters, who benefit from electricity hat is priced at rates up to eight times lower than the average household tariff. Some take a double dip: for instance, BHP Billiton not only consumes huge amounts of cheap electricity and then export metals and minerals without much

beneficiation, but also creams it off in the coal mining scramble. UN agency UNCTAD recently indicated that nearly half of our electricity is ‘exported’ in this way, apparently a much higher proportion than any other country.

Electricity prices have doubled since the decision to build the mega power plants – and the imminent decision to acquire a trillion rands worth of nuclear plants – and the poor carry a disproportionate portion of this burden. These economic choices tend to dis- incentivise industrial development, and therefore job creation, exacerbating our world record inequality and unemployment levels.


The mining industry, according to the National Union of Mineworkers, would create 140 000 jobs as part of the state’s one million new jobs campaign.

The total income for the mining industry in 2009 was R435 073 million, StatsSA said. The largest contributors to the total income were coal and lignite, earning R123 486 million. 2009 StatsSA figures state that the mining industry as a whole employed nearly 502 000 people, with coal mining employing only 70 742, or 14 percent of the total. This is far lower than the million jobs the mining industry sometimes claims to represent. However, indications were that employment in the coal mining sector was increasing considerably with the opening up and expansion of mines to meet the local demand for coal from Eskom and from international markets. For the three months ended April 2012, mineral sales at current prices fell by 11.8 percent compared with the three months ended January. But the actual value of sales increased by 2.8 per cent compared with

April 2011, with coal contributing R3.1 billion. The sector paid some R92 billion in wages according to StatsSA’s 2011 GDP reports. It was responsible for more than 50 percent of the country’s foreign exchange earnings in 2011, while mining’s total corporate tax payment was R12.8 billion in 2009 – which was ten per cent of the gross operating surplus profits of R123 billion.

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