The US$33bn merger between commodity traders Glencore and Xstrata is facing delays due to coal supply concerns in South Africa.
The country’s power utility company, Eskom, has raised concerns over how the merger could affect the coal market, particularly supply and price. Spokesperson Hilary Joffe tells GTR: “We have highlighted our concerns in relation to the security and cost of coal supply, and they relate not only to the fact that the merged entities would account for about 15% of Eskom’s total coal, but also to the fact that the merging entities would be one of the largest traders of coal on the market, and in that way could influence the market. We’ve not asked for prohibition in any sense, but we’ve proposed some conditions.”
Among the proposed conditions, Eskom would like the merged companies to maintain the current ratio between domestic and export supply. “Eskom has said many times that it is concerned about the competition from the export market particularly India and China for grades of South African coal which have traditionally been mainly for Eskom to use. That has driven up cost but also affected supplies,” Joffe adds.
South Africa’s competition tribunal has granted Eskom the right to intervene in its deliberations on the proposed merger, and hearings were scheduled to take place this week (December 10-14), but have been delayed to the third week in January upon request from Glencore and Xstrata.
Joffe explains: “Yesterday (December 10) the merging parties submitted an application asking for the scope of Eskom’s intervention to be limited. The tribunal did not grant the application, but then the merging parties asked for postponement until mid January and we agreed to it.”
As a consequence, Glencore and Xstrata have extended the deadline for the merger to January 31, 2013, providing that all outstanding regulatory approvals in China and South Africa are reached.