BHP Sees Risks to South African Coal Supply in Draft Mining Law

BHP Billiton Ltd. (BIL) said planned amendments to South Africa’s mining laws that could see coal declared strategic and subjected to export curbs threaten to compound likely energy shortages in Africa’s largest economy.

South Africa’s energy needs “can only be met if there is a requisite investment in new coal mines,” BHP’s local coal unit said in a written submission to lawmakers today. The “specter of changes” proposed in the amendments will deny the coal mining industry the regulatory certainty needed to encourage investment, it said.

BHP commented on the last of four days of hearings at parliament in Cape Town on proposed changes to the 2002 Mineral and Petroleum Resources Development Act. The government says the changes are to ensure the nation benefits more from its mineral endowment. They would enable the mines minister to force producers to offer an unspecified part of their output to local processors and get permission to export any strategic minerals.

“Such discretionary powers will be a disincentive,” Melbourne-based BHP said. The world’s largest mining company joins Anglo American Plc (AAL) and a succession of other metals, oil and gas producers in telling lawmakers that the proposed amendments are overly onerous, too vague and will have unintended consequences.

Eskom Holdings SOC Ltd., the state power utility, last week backed plans to have coal declared a strategic resource to avert expected shortages of the fuel from 2018.

Coal Abundance

While Eskom, which burns coal to generate 85 percent of its electricity, has contracted 80 percent of the amount it needs for the next five years, it anticipates a shortage of as much as 40 million metric tons of the fuel a year after 2018.

“South Africa is blessed with an abundance of coal that is sufficient to meet not only local demand, but also demand for exports,” said BHP, whose officials are due to address lawmakers later. “The requisite expansion in mining can only be achieved if an appropriate and competitive return is offered to investors.”

South Africa is the continent’s largest coal and gold producer and the world’s biggest supplier of platinum and chrome. Besides legislative changes, the mining industry is contending with rising costs, slumping mineral prices and ongoing labor unrest.

Compelling companies to sell their output for less than they could obtain on the open market may constitute expropriation and violate the country’s constitution, BHP said. The law, if implemented, could also force companies to breach their long-term supply contracts and be in violation of South Africa’s international trade obligations, it said.

The Chamber of Mines, an industry body whose members include BHP and London-based Anglo American, said on Sept. 13 it is continuing talks with the government over the proposed law and shortcomings may still be addressed.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net;

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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