Eskom to pull plug on BHP’s cut-rate power
Eskom and BHP Billiton have agreed to amend their pricing agreements for power supplies to BHP smelters, Eskom said.
«This is a significant milestone that results in a new pricing path which will not be linked to commodity pricing and foreign currency,» Eskom said on Monday, after Business Day reported this morning that the controversial long-term agreements for power supply would be altered.
It said the deal would affect the Mozal smelter in Mozambique and Hillside and Bayside smelters in South Africa.
No other details were immediately available.
Business Day reported earlier today that ESKOM and BHP Billiton would amend their controversial long- term agreements for the supply of power to BHP Billiton’s Mozal smelter in Mozambique and its Hillside and Bayside smelters in SA, Eskom said yesterday.
Eskom and BHP Billiton have been renegotiating the contracts as part of Eskom’s review of the contracts it entered into when SA had surplus power. Eskom says the contracts were intended to stimulate economic development in SA and southern Africa.
Faced with a shortage of funds for its R385bn capital programme and constrained power supply, Eskom has been taking a second look at long-term contracts. The review last year resulted in scrapping of plans for an aluminium smelter at Coega after Eskom and Rio Tinto Alcan terminated a power supply agreement for the smelter.
The renegotiation of the BHP Billiton contract will see Eskom move away from commodity and foreign currency-linked pricing practices that proved costly for Eskom in the past financial year. These contracts were an albatross around Eskom’s neck.
Eskom posted a R9,7bn loss for the year to March, mainly because of the fair-value loss on embedded derivatives associated
with the aluminium smelter power supply agreements. In terms of the contracts, BHP Billiton paid less for electricity when the aluminium price fell. So the sharp fall in the price of aluminium in the past financial year was a big contributor to the loss.