Sat Oct 22 15:45:39 SAST 2016

eskom initiates deal with bhp

By Brendan Boyle | Apr 21, 2010 | COMMENTS [ 0 ]

ESKOM has initialled an agreement with global mining giant BHP Billiton to unwind a special pricing arrangement that saw the power utility selling nearly a 10th of its output at a loss.

BHP Billiton and Anglo American signed deals with Eskom more than a decade ago, when the country had about 20percent more power than it needed, guaranteeing the supply of cheap electricity for most of the lifespan of aluminium smelters built on the basis of the contracts.

Eskom has never revealed the exact price paid by the two companies, but Democratic Alliance MP Pieter van Dalen said confidential documents in his possession suggested a price of 12 cents per kilowatt-hour, which is around a third of the price other industrial clients currently pay.

The two companies were not affected by the three-stage price increase of around 25percent a year approved by the energy regulator, Nersa, earlier this year.

Mpho Makwana, Eskom's acting chief executive, told Parliament's public enterprises committee that an agreement in principle was signed with BHP Billiton on March 31 to delink the pricing structure from the international price of aluminium and from the foreign exchange value of the rand. He said the deal should be concluded before May 27.

He said the utility had been locked into an "onerous contract" from which it could exit only if the two companies agreed to voluntarily relinquish some of their rights.

He said the new deal with BHP Billiton would remove 95percent of what he called the "embedded derivative" effect of the long-standing contracts and limit some of the volatility in Eskom's revenue stream. The basis of an agreement with Anglo American to account for the remaining 5percent was in place, but would take longer to conclude, he added.

Makwana did not say, however, whether the company had agreed to a pricing mechanism that would ensure that it paid at least what it cost to generate and to deliver the power.


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