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Eskom notifies coal suppliers of potential force majeure on contracts

South Africa’s struggling state-owned utility Eskom said on Monday it had sent letters to its coal suppliers warning that it could declare force majeure if demand continued to drop during the nationwide lockdown.

The government has imposed a nationwide lockdown, which started on March 27 and has been extended until the end of April, as it battles to curb the spread of the virus in Africa’s most industrialised economy.

“We have put some of our generation units out of service during this period of the lockdown because of the drop in demand. We anticipate that the demand will pickup soon after the lockdown has been lifted,” said Eskom spokesman Sikonathi Mantshantsha adding that it was currently still taking coal.

Exxaro Resources said its subsidiary Exxaro Coal, had received letters calling force majeure on the coal supply agreements for the supply of coal to Eskom’s Medupi and Matimba power stations for the period starting on April 16 until one month after national lockdown has been completely lifted.

“The effect of the letters received by Exxaro, is that Eskom will not be taking the full contractually agreed tons of coal for the aforesaid period,” Exxaro said in a statement.

However Exxaro, which is one of Eskom’s main coal suppliers, said it was of the view that this did not constitute force majeure as stipulated in the coal supply agreements, as the power stations were still capable of supplying power and it planned to “vigorously defend” its position in the matter.

South Africa, one of the world’s top coal exporters, relies on coal for majority of its power.
Source: Reuters (Reporting by Tanisha Heiberg; editing by David Evans)

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