As demand drops, Eskom sends precautionary force majeure notifications to coal suppliers

Eskom has sent precautionary force majeure notices to all its coal suppliers, notifying them of the possibility that it may ask them to curtail supply as a result of lower demand since the start of the national lockdown.

"None have yet been asked to curtail supply. We are not even certain that this force majeure may be implemented, as it is not clear what the demand profile will be once the lockdown has been lifted," said Eskom spokesperson Sikonathi Mantshantsha on Tuesday morning. 

Force majeure describes a clause which exempts companies from fulfilling contractual obligations in cases of unforeseen disruptions beyond their control.

In an update to shareholders on Tuesday morning Exxaro - one of the power producer's largest coal suppliers - said it had received a force majeure notification for coal supply agreements in place for the supply of the Medupi and Matimba power stations. 

"As indicated in the letters received, this will be applicable for the period starting at 16 April 2020 until one month after national lockdown has been completely lifted."

Exxaro said it does not believe that the force majeure is warranted, "as the powers stations are still capable of supplying power".

"Exxaro will vigorously defend its position in this matter and take the necessary action," it added.  

The notice to coal contracts is a second such communication by the state-owned power producer during the ongoing nationwide lockdown which is expected to expire at the end of April. On March 25, Eskom issued notices to Independent Power Producers in the wind sector informing them that it would stop receiving power from them due to low demand for electricity. 

The power utility at the time said each supplier may be curtailed for a few hours a day over the lockdown period, and that producers would be compensated for the downtime.

However, the South African Wind Energy Association accused Eskom for failing to communicate the decision with the sector prior to issuing the notices, and stated that it would consider a legal opinion on whether the reduced demand for electricity constitutes a force majeure.

- Additional reporting by Sibongile Khumalo