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The coal industry and resource nationalism in South Africa

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World Coal,

Aleksandra Tomczak, World Coal Association, discusses the risk of resources nationalism in South Africa.

With the release of an updated 2030 roadmap for the electricity sector and the possible passing of amendments to the Mineral and Petroleum Resources Development Act, 2014 is certainly an important year for the coal industry in South Africa.

The Integrated Resource Plan for Electricity for 2010 – 2030, most likely to be announced in the first half of the year, will define the contribution of various energy technologies and fuels toward incremental energy supply in South Africa. The current draft of the plan prescribes additional coal-fired generation capacity of 2450 MW, in comparison to 11 230 MW from gas and 13 070 MW from solar energy, indicating a desire to diversify an electricity mix in which coal currently supplies 90% of the country’s electricity.

A higher share of more expensive gas-fired and renewables- based power generation could be problematic for the South African economy and consumers, says Ian Hall, general manager at Anglo American Thermal Coal: “South Africa is already experiencing unprecedented hikes in electricity prices – a 200% increase since 2008.” This, together with low annual GDP growth rates of around 2% and aggressive demand reduction initiatives, has contributed to electricity consumption remaining flat for the past three years, despite up to 25% of the population not having access to electricity.

The issue of affordable and reliable energy could also be an important theme of the forthcoming general elections as companies and households face restrictions on their energy demand and many have had to drastically reduce their energy use due to rising costs.

The South African government is also expected to adopt a number of important amendments to the Mineral and Petroleum Resources Development Act. The proposed amendments introduce a new category of “strategic minerals”, which could be made subject to export and price controls. It is unclear whether such a declaration could result in coal being subjected to export and price controls. According to Hall, the proposed amendments could discourage future investments in coal mining in South Africa until the full effects of the changes are known, as investors would run the risk of having their assets declared strategic, which may mean potential price or export restrictions on coal produced.

This is an edited extract of an article that first appeared as TOMCZAK, A., “What to watch in 2014: Policy developments that will shape the coal industry”, Cornerstone (Spring 2014), pp. 19 – 25. Cornerstone is the official journal of the World Coal Association.

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