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South Africa’s Eskom raises concerns over Glencore-Xstrata

The logo of Glencore is pictured in front of the company’s headquarters in the Swiss town of Baar. Glencore is seeking to take over miner Xstrata, one of South Africa’s biggest coal producers and a key supplier of Eskom, the utility that supplies nearly all the country’s electricity.

Michael Buholzer/Reuters

Commodities trader Glencore International PLC faces a potential South African hurdle in its $33-billion (U.S.) takeover of miner Xstrata PLC, after power utility Eskom raised concerns the deal could affect its coal supplies.

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.

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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 per cent 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. Ms. Joffe said the merged entity would be supplying 15 per cent 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 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.

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