South Africa Reevaluates Historic Coal Contracts as Transformation Costs Drive Electricity Price Surges

Electricity Minister Ramokgopa moves to revive historic coal contract models to turn Eskom back into a price maker and reduce national energy costs.

By: AXL Media

Published: Apr 19, 2026, 7:00 AM EDT

Source: Information for this report was sourced from Daily Investor

The Financial Toll of Ending Evergreen Agreements

The transition of Eskom from a dominant price maker to a vulnerable price taker has fundamentally altered the economics of South African energy. According to Electricity Minister Kgosientsho Ramokgopa, the decision to move away from historic cost-plus contracts signed before 1994 has directly contributed to the current era of expensive electricity. These legacy agreements, which once secured stable and low-cost coal supplies, were gradually dismantled to allow for broader market participation. However, this shift has forced the utility to contend with international commodity price fluctuations, significantly increasing the primary energy costs passed on to the end consumer.

Balancing Economic Efficiency with National Transformation

The government's drive to diversify Eskom’s supply chain was a primary motivator for ending the long-standing contracts that favored white-owned mining operations. Ramokgopa explained to the SABC that while the necessity for transformation was absolute, the immediate result was a sacrifice in operational efficiency. By opening the market to a wider array of black-owned businesses, the utility lost the rigid cost controls inherent in the older model. The Minister noted that the current high prices are the "cost of transformation," though he maintains that this financial burden should only be a temporary phenomenon as the utility undergoes an operational recovery.

The Logistics of the Mouth of the Mine Model

Historically, Eskom’s peak efficiency was rooted in a specific infrastructure strategy where power stations were built at the "mouth" of coal mines. This arrangement allowed for the direct transfer of coal via conveyor belts, virtually eliminating the logistical expenses and carbon footprint associated with road or rail transport. Under the cost-plus model, Eskom would invest in the mine’s infrastructure and expansion in exchange for a flat profit margin on the coal extracted. This ensured that the utility’s production costs remained tied to actual extraction expenses rather than the volatile prices found on the global export market.