SOUTH AFRICAN COAL ROADMAP OVERVIEW OF THE SOUTH AFRICAN COAL VALUE CHAIN PREPARED AS A BASIS FOR THE DEVELOPMENT OF THE SOUTH AFRICAN COAL ROADMAP OCTOBER 2011 Overview of the South African Coal Value Chain | I Disclaimer: The statements and views of the South African Coal Roadmap are a consensus view of the participants in the development of the roadmap and do not necessarily represent the views of the participating members in their individual capacity. An extensive as reasonably possible range of information was used in compiling the roadmap; all judgments and views expressed in the roadmap are based upon the information available at the time and remain subject to further review. The South African Coal Roadmap does not guarantee the correctness, reliability or completeness of any information, judgments or views included in the roadmap. All forecasts made in this document have been referenced where possible and the use and interpretation of these forecasts and any information, judgments or views contained in the roadmap is entirely the risk of the user. The participants in the compiling of this roadmap will not accept any liability whatsoever in respect of any information contained in the roadmap or any statements, judgments or views expressed as part of the South African Coal Roadmap. SYNTHESIS enables a wide range of stakeholders to discuss the future of the industry. The fact that at this stage in the process Phase The South African Coal Roadmap (SACRM) process I does not provide any clarity on the outlook for the South African coal industry is o"set by the constructive process The need for a Coal Roadmap for South Africa was identi!ed which has been initiated, which augurs well for the successful in 2007 by key role players in the industry, under the auspices development of a South African Coal Roadmap in Phase II. of the Fossil Fuel Foundation (FFF). The FFF, coal producers, Eskom and the Department of Minerals and Energy (DME) Aim of the South African Coal Roadmap study were amongst the originators of the project. A project plan and initial terms of reference were prepared, along with a The South African Coal Roadmap study was initiated with the proposed structure and governance documents. In November following aims: 2008, the project was “launched” at a stakeholder meeting t To understand the value of coal to the South African in Johannesburg. An “interim Board” was established in April economy; 2009, but without a representative from the South African t To provide independent and impartial analysis and Government, due to the impending reorganisation of the comment on the various national and international DME into two ministries (Energy and Mineral Resources). In drivers, that may impact on the supply and utilisation of March 2010 the Department of Energy (DoE) formally (re) coal going into the future; joined and the initiative was formalised - contributions were requested from participants, enquiries issued for the project t To understand the primary factors required for the management role and a project manager appointed in June successful development of various future coal related 2010. The Department of Mineral Resources (DMR) also opportunities, including economic enablers and skills subsequently provided its support, along with a wide range development; of other stakeholders. The budget for the initiative was limited t To provide guidance on issues of governance, enabling to voluntary contributions from a small number of members policy framework, research and development, private and although it was inadequate to cover the total cost of the sector and infrastructural investments and opportunities project, it was decided to commence with “Phase I”. This was for social investment. to comprise a summary or fact base of the current state of the SA coal industry and key issues facing it – and a description The South African Coal Roadmap Study consists of two of a future “business as usual” scenario. Phase II, still to be phases: Phase I develops a status quo assessment and funded, was to look at alternative scenarios and develop a identi!cation of possible future scenarios, and Phase II will “roadmap” to enable the preferred outcome to be realised. include a detailed scenario analysis to de!ne the roadmap. The outcomes of Phase I are presented in two parts. One It had been intended that most information for the fact base document presents a comprehensive status quo assessment be provided by participants via questionnaires and facilitated of all of the elements of the South African coal value chain. A workshops. This process did not, however, yield the desired second document identi!es three scenarios which are being level of information and it was necessary to supplement this explored as part of the overall study. In Phase II the scenarios by speci!c meetings with individual stakeholders. Other will be analysed in more detail, to provide a semi-quantitative constraints included the lack of updated resource and assessment of their implications for the coal value chain and reserve information on coal in South Africa – the Council for South Africa more broadly. The outcome of Phase II will be a Geoscience is simultaneously concluding work in this area. “roadmap” of a preferred path for the coal industry in At the same time, the future generation mix in South Africa South Africa. was under review and following a consultation process, the Integrated Resource Plan (IRP2010) was promulgated in May The role of coal in the South African economy 2011. This plan and the degree to which it is implemented will have a de!ning impact on future domestic coal requirements. Coal is the major primary energy source for South Africa. More A proposed carbon tax and a white paper on climate change than 90% of the country’s electricity, approximately 30% of also changed the outlook for the power generation and coal the liquid fuel, and approximately 70% of its total energy to liquid (CTL) industries. Given these key uncertainties, it needs are produced from coal. Coal also plays a signi!cant was decided not to produce a “business as usual” outlook for role in supply to the South African chemicals industry, is an the South African coal industry but rather to propose three essential component of its steelmaking industry and provided divergent scenarios as a basis for further examination in R 35.4 billion in export revenues. Coal and platinum have Phase II. exchanged the top positions by sales value of South Africa’s resources for the last two years (coal R 69.5 billion in 2010). Perhaps because of these challenges and the lack of an organised coal association, a key aspect of the SACRM process South Africa produced 244.6 Mt of marketable coal in 2010, has been the degree of participation that the initiative has which is expected to have increased to around 255 Mt in generated. This can be observed by the extensive list of 2011. South Africa’s total coal exports were 67.6 Mt in 2010 organisations making up the SACRM membership. For the with 63.4 Mt through Richards Bay Coal Terminal (RBCT), !rst time, a forum has been created in South Africa which 1.8 Mt through Matola Coal Terminal in Mozambique and Overview of the South African Coal Value Chain | III small amounts through Richards Bay and Durban harbours. increase of 1.4 billion tonnes over 2011’s expected 728 Mt Domestically, coal is used primarily to produce electricity by (Wood Mackenzie, 2011b). Eskom and liquid fuels and chemicals by Sasol. Other smaller users include the iron and steel, ferroalloys, industrial and South Africa’s potential for increased export is dependent on manufacturing sectors. having su$cient production capacity for coal, the necessary transport infrastructure becoming available, and encouraging The South African coal mining sector directly employed foreign investment into coal mining through provision of 73,618 people and paid R 14.1 billion in wages in 2010, which a suitable policy and !nancial environment. If South Africa constituted 14.4% of total wage income (2009) in the mining does not take the required measures, it may miss out on the industry as a whole (Chamber of Mines, 2011a). Employment potential economic bene!ts of this boom in much the same down the value chain is also signi!cant: at the end of the way that it missed out on the commodity and energy booms 2009/10 !nancial year Eskom reported that it had 36,547 of 2000 to 2009. In South Africa, there is synergy in the degree direct employees (Eskom, 2010a) and Sasol directly employed of bene!ciation undertaken to provide export quality coal on 28,978 people in its South African operations at the end of the the one hand and the lower grade coal suitable for domestic 2010 !nancial year (Sasol, 2010a). Both of these enterprises use in existing power stations and in Sasol’s Fischer-Tropsch depend on coal for the bulk of their primary inputs. Direct process on the other. It is expected that a number of planned employment by coal mining, Eskom and Sasol is therefore new mines could not be viable if producing only one of the more than 139, 000, with many more indirect employment two products. Therefore, to some extent, the export market numbers. In 2009, the coal mining sector accounted for about is required to create the product for Eskom consumption and 1.8% of GDP directly, or 4.5% if indirect multipliers are added vice versa. (StatsSA, 2010). Certain developments in 2011 have been very relevant for South Africa has an estimated 32 billion tonnes of coal the coal industry in South Africa. The electricity plan for the reserves1, with a study being conducted in parallel with this country to 2030 (the IRP2010) was recently promulgated in one seeking to update this reserve base.