South Africa’s economy is heavily dependent on coal. Coal provides about 88 percent of total primary energy, supports about 90 percent of electricity generation, and provides feedstock for close to a third of the country’s liquid fuels via Sasol’s coal-to-liquids process. South Africa has the world’s sixth largest recoverable coal reserves at 54 billion short tons, approximately 5 percent of the world total. Although South Africa has 19 official coal fields, 70 percent of recoverable reserves lie in just three -- Highveld, Waterberg, and Witbank. In 2007, South Africa produced 283 million short tons (Mmst), and consumed 203 Mmst. The vast majority of consumed coal is used in electricity generation and the synthetic fuel industry. Almost one-third of coal produced in South Africa is exported, with the primary importers being the European Union (Germany and Spain) and East Asia (Japan).

The coal-mining industry is highly concentrated, with six companies, Anglo Coal, BHP Billiton, Sasol Mining, Eyesizwe Coal, Kumba Coal, and Xstrata Coal accounting for 90 percent of coal production. Production and consumption of coal in South Africa have grown steadily over the past two and a half decades, at an average annual rate of 2.7 percent. In 2007, about 125 million tons or 64 percent was burned by Eskom in its power stations, with Sasol consuming another 47 million tons and industry and small consumers accounting for the remainder.

This growth in coal use – especially by Eskom and Sasol – is expected to continue or even accelerate over the next few years. Eskom is in the process of returning to service three coal-fired power stations (Camden, Grootvlei and Komati) with a combined capacity of 3,800 megawatts (MW). It has also begun construction of the new 4,800 MW Medupi power station, whose first unit is due to begin generation in 2012, while a second plant called Project Bravo (5,400 MW) scheduled to start generating power in 2013, was recently given the go-ahead. The combined consumption of these five power plants could raise Eskom’s coal use by over 50 million tons, assuming they use the average amount of coal burned by existing power stations in 2007.

In July 2005, Anglo American’s Isibonelo coal mine produced its first coal for shipment to Sasol’s Segunda refinery. The $65 million project supplies 5 million short tons of thermal coal annually to Sasol Synthetic Fuels since reaching full production in late 2006. Anglo America and Sasol also announced plans to develop the Kriel South coalfield. Anglo will establish an operation on the northern portion of the field, and Sasol plans to expand its existing underground operations at the Syferfontein coal mine. Coal from the two operations is expected to supply Sasol’s refinery for the next 20 years. In May 2008, Sasol was in the planning stages of its proposed mine expansion at Twistdraai, adjacent to Syrfontain colliery. Coal reserves in this operation are estimated at 83 million tons, with an annual production rate of 4.15 million tons.

Environmental concerns pose the main challenge to coal as an energy source. In January 2007, Eskom successfully commissioned an underground coal-gasification pilot plant next to Majuba Power Station in Mpumalanga. The underground coal-gasification process produces a synthetic gas which is used as a fuel for either boilers or turbines.

Eskom announced its intention to begin diversifying its primary energy mix by using less coal 5 years ago. By mid-2007, it was building open-cycle natural gas turbines at Atlantis and Mossel Bay, where 1,029 MW was expected to be commissioned. In addition, Eskom plans to build a 100-MW wind facility in the near future, pending licensing approvals, and will upgrade the Gariep Hydroelectric Power Station. Feasibility studies continue regarding other renewable energy and natural gas plant initiatives.