Eskom and BHP sign new tariff deal

AMENDED RATE: Mpho Makwana. Pic. Russell Roberts. 12/11/2009. © Financial Mail.
AMENDED RATE: Mpho Makwana. Pic. Russell Roberts. 12/11/2009. © Financial Mail.

ESKOM has signed an amended tariff deal with BHP Billiton for its Mozambican smelter to remove a link to commodity pricing that hit the power utility's balance sheet last year, the companies said in a joint statement yesterday.

Contracts to supply electricity to the mining giant's Mozal aluminium smelter in Mozambique and its Hillside and Bayside smelters in South Africa accounted for nearly all of Eskom's embedded derivative liabilities that led to a book value loss of R9,7billion in the year to end of March 2009.

"The agreement, effective 31 March 2010, removes the impact of embedded derivatives on Eskom's balance sheet, as well as all onerous conditions," Eskom's acting chairperson Mpho Makwana said.

The new agreement needs to be approved by energy regulator, Nersa. Discussions with BHP on the South African smelter contracts are still ongoing and Eskom expects to conclude them in the course of the year.

Similar talks with Anglo American will also be finalised before the end of this year, Eskom said earlier.

The contracts have been a thorn in the flesh for cash-strapped Eskom, already struggling to find the R461billion it needs to build new power stations to supply fast rising demand.

According to newspaper reports last week, Energy Minister Dipuo Peters confirmed that BHP paid an average of 12,3c a kilowatt hour for Eskom power supplied to its Mozal smelter in the year to March - half the 24,3c cost of its generation.

The contract with Motraco, the company that carries power to the Mozal smelter, was signed in 1997 and expires in 2025.

Eskom spokesperson Andrew Etzinger said yesterday he could not disclose what rates BHP would be paying under the amended agreement.

He said: "The specific amount payable by BHP Billiton and the expiry date of the Motraco contract is subject to a confidentiality clause in the agreement.

"What I can say though is that (the amount) is significantly more attractive to Eskom and it is an equitable agreement now.

"In particular the commodity link has been removed, which means that the price paid by BHP Billiton is no longer related to the price of aluminium as it was before."

Pieter van Dalen, the DA's spokesperson on state-owned enterprises, who exposed the preferential rates in April, said yesterday he did not believe Eskom had signed a new deal with BHP.

"I think they are pulling the wool over our eyes," he said. "Why won't they tell us how much BHP will be paying?"

Van Dalen said he would lobby to have Eskom and Nersa appear before Parliament's portfolio committee on state-owned-enterprises to "explain how the new contracts are structured and to disclose the new rates".

"They must prove to us that they are not giving electricity away at less than cost."

BHP chairperson Xolani Mkhwanazi said: "BHP Billiton remains acutely conscious of the electricity supply challenges facing South Africa and the region and has been exploring innovative and sustainable solutions to these challenges."

He did not give any details.