Publication: Cape Times Issued: Date: 2010-04-21 Reporter: Melanie Gosling

Eskom's secret deal dossier exposed



Cape Times



Reporter Melanie Gosling
Web Link

A secret Eskom dossier has revealed that Eskom has been supplying electricity to BHP Billiton at 12c a kilowatt hour - below the cost of electricity production *1.

The secret pricing deal with the multi-national company to power its massive aluminium smelters accounted for the bulk of Eskom's R9.5 billion loss last year.

Eskom has special secret price deals with BHP Billiton and Anglo American, which use nine percent of all electricity generated in South Africa.

This emerged during a meeting yesterday of the parliamentary portfolio committee on public enterprises, where Eskom executives made a presentation to MPs on the utility's controversial special pricing agreements.

While Eskom made their presentation, Democratic Alliance MP Pieter van Dalen sat in the front row with his arm on a thick blue ring-back file, marked in red on its spine: "SECRET/GEHEIM".

At question time, Van Dalen tapped his fingers on the file and said he had information that Eskom was selling electricity to BHP Billiton for 12c a kw/h. This was done via Motraco, a joint venture company between South Africa, Mozambique and Swaziland.

He added that his information was that the company's three aluminium smelters contributed a mere 0.1 percent to GDP *2 and that BHP Billiton owed Eskom R100m. He said Eskom's price of 12c was a case of "giving electricity away" to BHP Billiton.

Asked by the committee chairwoman, Vytjie Mentor, about the file that he appeared to be referring to, Van Dalen said he could not hand it over to the committee because it was secret.

"Who made it secret?" she asked.

"Eskom itself," Van Dalen replied.

She ruled that Van Dalen was "out of order" for accepting the secret Eskom file.

Van Dalen said: "But if Eskom could say whether it is a lie or the truth."

"I'm ruling you're out of order ... You should not tempt employees to give you secret information," Mentor said.

When it was Eskom's turn to reply to a list of questions put to them by the MPs, a sober-looking Makwana began: "I've just been informed of a form of crime with an MP, indicating a serious leaking of information out of our system. I will find out what I should do in that regard."

Later when ID MP Lance Greyling asked Eskom to confirm the 12c kw/h, Makwana replied: "I would prefer to respond in writing because it is more than face value. There are other components of value embedded in this contract."

Makwana told the committee that Eskom had reached an in principle agreement with BHP Billiton that would release it from the long-term tariff agreement. Attempts to renegotiate a similar contract with Anglo American was proving more difficult.

Makwana said "95 percent of the liability" had been eradicated with the agreement signed on March 31. Eskom hoped they would sign a binding agreement on May 27, once it had been subject to an audit.

The special low tariffs had been negotiated in a different era, prior to 1994, when there was a surplus of electricity *3.

The BHP Billiton electricity contracts were to supply electricity to its Mozal and Hillside aluminum smelters. Makwana said Eskom had been "held to ransom" by these agreements, which linked the electricity tariff to the aluminium price, which had dropped in the global economic crisis.

With acknowledgements to
Melanie Gosling and Cape Times.

*1       When I started doing these calculations in March 2008, because it was so secret, I used R0,29 per kWh as a worst case.

In reality the current price is R0,12 per kWh.

I believe it has been as low as R0,06 or R0,07 per kWh

*2      Like I was saying.

*3      This is just so much nonsense.

While it is true that these arrangements originated in the pre-1994 era, they were renegotiated by the current government in the mid-nineties.

Indeed the following person was instrumental in re-negotiating these new supply agreements :

Full Names

Dr Xolani Humphrey Mkhwanazi
Synopsis President and Chief Operations Officer: Aluminium South Africa at BHP Billiton;
Date of Birth 25/03/1955
Place of Birth Hlabisa, KwaZulu-Natal
Country of Residence South Africa
Nationality South African


President and Chief Operations Officer Aluminium South Africa at BHP Billiton   2005 
Chief Executive Bateman Africa (Pty) Ltd Boksburg, Gauteng 2004 2005
Chief Executive Officer National Electricity Regulator South Africa 1999 2004

You see, he did this in 2004 as NER and then became President and Chief Operations Officer Aluminium South Africa at BHP Billiton in 2005.

Make sense?

Of course it does.

And was this pre 1994?

Dr Xolani Humphrey Mkhwanazi's personal biggest ever disappointment:
"Being accused of corruption at the National Electricity Regulator"

And don't think for one nanosecond that Dr Mkhwanazi did not go through the revolving door from the NER to BHP by working at Bateman.

Although is is indicated that Mkhwanazi joined BHP in 2005, in fact he became the Chief Operating Officer of BHP Aluminium South Africa on 2005-02-01 having been appointed by 2005-01-10.

He left the NER at the end of April 2004.

The "cooling-off" period was just 8 months - just long enough to lose sight of this enormous conflict of interest.

Eskom and/or BHP directly owe this country's citizens and taxpayers several tens of billions of Rands.

Indirectly, due to the loadshedding which would otherwise not have occurred, Eskom and/or BHP owe this country's citizens and taxpayers several hundreds of billions of Rands.

This is corruption on a grand scale - charge them.