South Africa: Eskom declares Force Majeure on Key Coal Supplier Exxaro Resources

In the wake of ongoing lockdown in South Africa due to COVID-19, state power utility firm, Eskom has declared force majeure (unforeseen circumstances that prevent the fulfilment of a contract) on one of its biggest coal suppliers, Exxaro Resources.

The force majeure, which applies to coal from Exxaro's Grootegeluk mine in Limpopo province, is intended to run from April 16 for up to a month after the COVID-19 related national lockdown is completely lifted. The effect of the force majeure declaration is that Eskom will not be taking the full contractually agreed quantity of coal for the aforesaid period from Exxaro.

Eskom was expected to take 25.2 MnT from Grootegeluk mine in line with an offtake agreement with Exxaro.

However, this has irked Exxaro and after consultation with its legal advisers the company said that this event does not constitute force majeure as stipulated in the coal supply agreements, as the power stations are still capable of supplying power. It further added that Exxaro will vigorously defend its position in this matter and take the necessary action.

Exxaro is also of the view that this communication from Eskom is not in accordance with the spirit of the call by President Ramaphosa, requesting businesses to continue paying contractors.

Exxaro said it would work towards a mutually acceptable resolution. "As Eskom has not indicated the extent of the reduced coal offtake, the potential impact on Exxaro cannot be quantified until discussions with Eskom have been finalised."

This is not the first time the coal supply agreement from Eskom's Grootegeluk mine to Medupi plant has been in the spotlight. In previous years, Exxaro has applied penalties worth tens of millions in rands on Eskom in terms of take-or-pay provisions in the contract. This was after the delayed development of Medupi resulted in it failing to take delivery of coal.