Coal and the Post-Apartheid Minerals Energy Complex
Coal and the Post-Apartheid Minerals Energy Complex
Saturday, 4 July 2015: 10:15 AM-11:45 AM
TW1.3.03 (Tower One)
The notion of foundational economy, amongst other things, urges us to examine those sectors of the economy taken for granted; the unglamorous which meet every day needs. Coal can be considered as such, and the continuing centrality of coal in the provision of energy make it an important area of study. In South Africa coal has served both as an important site of accumulation and as the basis for a particular path of industrialization. So electricity intensive has been South African industrialization, it has been dubbed ‘Electric Capitalism’ (McDonald 2009). Yet despite abundance of coal, and subsidized electricity, the state power generator Eskom is in crisis, and frequent power outages hit not only households, ironically they are also a challenge for much of industry.
Whilst South Africa’s coal production is sufficient for it to be in the top ten of coal producers globally, its output (259 million tonnes in 2012 for example) is considerably lower than that of global leader China (3,549 million tonnes in 2012). However earnings amounting to R101 billion in 2013, 51% of which was export revenue, and 49% of which was from local sales. Of local sales, some 66% go to Eskom, the parastatal which generates over 90% of South Africa’s electricity. Second to Eskom, 21% of domestic sales are to Sasol, the giant coal to liquids manufacturer which produces fuel and chemicals and which was established by the apartheid regime in 1950 but which is now a private, global concern. The coal sector employs around 88,000 people, and reserves of coal remain significant. New coal fields are being developed and with Eskom’s two, possibly three, new coal fired power stations, demand is going to increase. The industry might well consider its future is bright, despite crashing global market prices, the crisis of Eskom, environmental concerns, a range of transport and infrastructure logistical issues, and regulatory uncertainty.
Historically, the impetus for coal exploration and production in South Africa came first from the discovery of diamonds and then, particularly, from gold. The development of coal and gold, both concentrated around Johannesburg, were closely related. Coal, then later coal-generated electricity, was necessary for the energy for mining, minerals processing, for the railways and other infrastructure necessary for transportation. Coal production was historically concentrated, and remain today concentrated, in Mpumalanga, formerly the Transvaal. But new coal fields in Limpopo are being opened up.
The close connections between minerals and energy produced a particularly skewed pattern of industrialization, characterized by Fine and Rustomjee as the Minerals-Energy Complex. In the apartheid period, coal and electricity growth were intertwined closely. Escom (as it was then spelt) favoured Afrikaans capital in its procurement practices, and the state used preferential allocation of rail capacity to favour Afrikaans capital and hence both contributed significantly to the latter’s growing strength. Sasol, a major coal consumer and miner, was created as part of the apartheid project also, as was the (now privatized) steel giant, Iscor. By the 1970s, Afrikaans capital was able to cooperate with English coal owners in one of the largest coordinated mining, logistics and electricity generation programmes ever witnessed on the African continent. The result by the late 1970s was significant expansion of domestic coal mining, associated expanded coal-fired power generation capacity, corresponding export rail logistics infrastructure and the building of the Richards Bay Coal Terminal, the largest coal export facility in the world.
Since 1994, the major conglomerate groupings which comprised the MEC have restructured extensively and the major coal producers are now part of large, internationalized and financialized groupings which see South Africa as one element of their global operations – even though they historically developed within South Africa. South African production today is dominated by five big producers: Anglo American Thermal Coal, Glencore (now merged with Xstrata), Sasol Mining, Exxaro Resources, and BHP Biliton Energy Coal South Africa. Around 120 ‘junior’ mining companies also operate, but they accounted for only 7% of total production in 2011.
The internationalisation of the previously South African-based coal mining firms Anglo American and Biliton (before its merger with Australia’s BHP) was driven by dramatic changes in coal markets arising from the deregulation of (mainly developed market) electricity industries in the 1990s. Whereas previously, the bulk of global coal trade was directly between coal miners and electricity utilities through long-term contracts, the emerging patterns of deregulated electricity utilities towards buying on the spot market increased significantly. Anglo and Billiton also responded to the higher Asian market growth for coal. This changed context has changed the relationship between coal miners, the state and Eskom. Primary energy costs for Eskom have risen dramatically. Coal producers appear to see Eskom as a secure revenue base, but prioritize the more lucrative international market.
The strategy of the African National Congress (ANC) across mining and other sectors has been to promote the entry of black owned firms in order to redress the historic legacy of white minority rule under apartheid. ‘Junior’ miners in particular are seeking to gain mining rights in the Waterburg, the new coal field being opened up in Limpopo, but so too are the major players. However for this strategy of black ‘economic empowerment’ to be successful, junior miners require finance, infrastructure and access to the (privately owned) Richards Bay Coal Terminal, or for a new coal export terminal to be built. This is placing greater pressure on the ANC, and on transport parastatal Transnet to deliver on its infrastructure promises. Amidst much discussion of infrastructure as means to drive industrialization and economic growth in Africa, and with infrastructure provision a key ANC policy plank, it is tempting to argue that the MEC is on course for renewal (with all the negative consequences that would entail) only this time with the involvement of black capital. To what extent will this infrastructure spend prioritize servicing the MEC over desperately needed social infrastructure to meet basic needs? And will the state deliver – or, will a flawed project of MEC renewal falter on the rocks of division and fracture?
Whilst South Africa’s coal production is sufficient for it to be in the top ten of coal producers globally, its output (259 million tonnes in 2012 for example) is considerably lower than that of global leader China (3,549 million tonnes in 2012). However earnings amounting to R101 billion in 2013, 51% of which was export revenue, and 49% of which was from local sales. Of local sales, some 66% go to Eskom, the parastatal which generates over 90% of South Africa’s electricity. Second to Eskom, 21% of domestic sales are to Sasol, the giant coal to liquids manufacturer which produces fuel and chemicals and which was established by the apartheid regime in 1950 but which is now a private, global concern. The coal sector employs around 88,000 people, and reserves of coal remain significant. New coal fields are being developed and with Eskom’s two, possibly three, new coal fired power stations, demand is going to increase. The industry might well consider its future is bright, despite crashing global market prices, the crisis of Eskom, environmental concerns, a range of transport and infrastructure logistical issues, and regulatory uncertainty.
Historically, the impetus for coal exploration and production in South Africa came first from the discovery of diamonds and then, particularly, from gold. The development of coal and gold, both concentrated around Johannesburg, were closely related. Coal, then later coal-generated electricity, was necessary for the energy for mining, minerals processing, for the railways and other infrastructure necessary for transportation. Coal production was historically concentrated, and remain today concentrated, in Mpumalanga, formerly the Transvaal. But new coal fields in Limpopo are being opened up.
The close connections between minerals and energy produced a particularly skewed pattern of industrialization, characterized by Fine and Rustomjee as the Minerals-Energy Complex. In the apartheid period, coal and electricity growth were intertwined closely. Escom (as it was then spelt) favoured Afrikaans capital in its procurement practices, and the state used preferential allocation of rail capacity to favour Afrikaans capital and hence both contributed significantly to the latter’s growing strength. Sasol, a major coal consumer and miner, was created as part of the apartheid project also, as was the (now privatized) steel giant, Iscor. By the 1970s, Afrikaans capital was able to cooperate with English coal owners in one of the largest coordinated mining, logistics and electricity generation programmes ever witnessed on the African continent. The result by the late 1970s was significant expansion of domestic coal mining, associated expanded coal-fired power generation capacity, corresponding export rail logistics infrastructure and the building of the Richards Bay Coal Terminal, the largest coal export facility in the world.
Since 1994, the major conglomerate groupings which comprised the MEC have restructured extensively and the major coal producers are now part of large, internationalized and financialized groupings which see South Africa as one element of their global operations – even though they historically developed within South Africa. South African production today is dominated by five big producers: Anglo American Thermal Coal, Glencore (now merged with Xstrata), Sasol Mining, Exxaro Resources, and BHP Biliton Energy Coal South Africa. Around 120 ‘junior’ mining companies also operate, but they accounted for only 7% of total production in 2011.
The internationalisation of the previously South African-based coal mining firms Anglo American and Biliton (before its merger with Australia’s BHP) was driven by dramatic changes in coal markets arising from the deregulation of (mainly developed market) electricity industries in the 1990s. Whereas previously, the bulk of global coal trade was directly between coal miners and electricity utilities through long-term contracts, the emerging patterns of deregulated electricity utilities towards buying on the spot market increased significantly. Anglo and Billiton also responded to the higher Asian market growth for coal. This changed context has changed the relationship between coal miners, the state and Eskom. Primary energy costs for Eskom have risen dramatically. Coal producers appear to see Eskom as a secure revenue base, but prioritize the more lucrative international market.
The strategy of the African National Congress (ANC) across mining and other sectors has been to promote the entry of black owned firms in order to redress the historic legacy of white minority rule under apartheid. ‘Junior’ miners in particular are seeking to gain mining rights in the Waterburg, the new coal field being opened up in Limpopo, but so too are the major players. However for this strategy of black ‘economic empowerment’ to be successful, junior miners require finance, infrastructure and access to the (privately owned) Richards Bay Coal Terminal, or for a new coal export terminal to be built. This is placing greater pressure on the ANC, and on transport parastatal Transnet to deliver on its infrastructure promises. Amidst much discussion of infrastructure as means to drive industrialization and economic growth in Africa, and with infrastructure provision a key ANC policy plank, it is tempting to argue that the MEC is on course for renewal (with all the negative consequences that would entail) only this time with the involvement of black capital. To what extent will this infrastructure spend prioritize servicing the MEC over desperately needed social infrastructure to meet basic needs? And will the state deliver – or, will a flawed project of MEC renewal falter on the rocks of division and fracture?