S.Africa's Eskom wants compensation if Glencore can't supply coal

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JOHANNESBURG, Aug 26 (Reuters) - South Africa's Eskom said on Wednesday it wants compensation from Glencore (Xetra: A1JAGV - news) 's mining subsidiary Optimum if it is unable to supply coal to its Hendrina power plant.

Administrators for Glencore's South African coal mining subsidiary suspended the firm's supply agreement with Eskom last Thursday while the mining unit undergoes a financial rescue programme.

"If they are unable to provide coal to us, they need to compensate us for not meeting their obligations. We have a three year agreement with them," Eskom spokesman Khulu Phasiwe told Reuters.

Optimum, which produces 10 million tonnes of coal a year, is under financial strain because it says it was selling coal to Eskom for less than the cost of production.

It (Other OTC: ITGL - news) has offered to temporarily supply coal to Eskom at the cost of production, higher than what Eskom currently pays, while a new deal is negotiated, the business rescue practitioner said last week.

Eskom said it had a 40 day reserve supply of coal for its 2,000 megawatt Hendrina plant and was looking at other suppliers if Optimum could not resume deliveries within that period.

"We are looking at trucking coal to that power station, that would be our easiest option," Phasiwe said. "Our aim is to get the best price possible because coal prices are so low at the moment."

South Africa's business rescue law, similar to Chapter 11 bankruptcy protection proceedings in the United States, allows a financially distressed company to temporarily delay creditors' claims against it or its assets. (Reporting by Peroshni Govender; Editing by James Macharia)