December 6, 2012 / 7:54 PM / 5 years ago

South Africa's Eskom raises concerns over Glencore - Xstrata

JOHANNESBURG (Reuters) - Commodities trader Glencore (GLEN.L) faces a potential South African hurdle in its $33 billion (20 billion pounds) takeover of miner Xstrata XTA.L, after power utility Eskom raised concerns the deal could affect its coal supplies.

Combination of file photos showing the logo of Glencore in front of the company's headquarters in the Swiss town of Baar (R) September 7, 2012, and the logo of Swiss mining company Xstrata at their headquaters in Zug March 26, 2008. REUTERS/Michael Buholzer/Files

Eskom spokeswoman Hilary Joffe said the South African utility was not calling for the deal to be denied a green light, but would ask the country’s competition authority to impose conditions on the tie-up.

“We are highlighting the risk that the merger could affect Eskom’s ability to obtain a timely, sufficient and competitively priced source of coal, and this could affect security of electricity supply,” she said.

The case will be heard by the regulator next week.

State-owned Eskom supplies nearly all of the electricity that powers the continent’s biggest economy and some 85 percent of that is generated by coal-fired power plants.

Xstrata is one of South Africa’s biggest coal producers and a key supplier of the fuel to Eskom. Joffe said the merged entity would be supplying 15 percent of Eskom’s coal and would be also among the largest traders in the coal market.

In the past, Eskom has raised concerns about the quality of coal received from mining companies, saying producers had been favouring exports over supplies to the utility, given higher returns in the export market, in turn hurting the performance of Eskom’s plants.

Apart from Eskom, the National Union of Metal Workers of South Africa (NUMSA) has been granted the right to intervene during the hearings, the competition authority said on Thursday.

Glencore’s long-awaited takeover of Xstrata, a deal worth $33 billion at Thursday’s prices, only has two hurdles left to clear: final approval from competition authorities in South Africa and China.

Reporting by Agnieszka Flak; Editing by Clara Ferreira-Marques

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