Eskom electricity shocker
Eskom is charging BHP Billiton one-fifth of the tariff paid by consumers, despite rising electricity costs for households and a “tight” power system, reports have said.
Eskom sells 9% of its electricity to BHP Billiton’s two aluminium smelters at less than one-fifth of the tariff paid by other consumers, Beeld reported on Friday (22 March).
Yet, on Thursday (21 March), the power utility advised all household users of electricity to cut their usage by 10% as its reserve electricity capacity remains critically low, BusinessDay reported.
“Eskom reminds customers…that the power system is very tight. We urge all
South Africans to partner with us to keep the lights on and to use electricity sparingly,
particularly during the evening peak period between 18h00 and 21h00,” Eskom said in a statement on Thursday.
In February, the National Energy Regulator of SA (Nersa) granted Eskom an 8% electricity tariff hike.
Eskom had applied for a 16% increase in electricity prices in each of the next five years.
The BHP deal
According to Sapa, the preferential tariffs for the two BHP Billiton smelters – Hillside in Richards Bay and Mozal in Maputo – enable the two loss-making smelters to be sustained while the rest of the country’s consumers, both household and industrial, pay much higher electricity prices.
Details of the deal emerged from contracts Eskom revealed to Media24 in terms of a court order ratified by the Supreme Court of Appeal last week. Billiton appealed against the original court order, but the appeal was rejected.
At Hillside, Billiton pays for two-thirds of the 1200 megawatts the smelter uses in accordance with a secret formula agreed upon as far back as 1992, which applies until 2028.
Hillside is paying 22.65 cents per kilowatt hour (kWh) to Eskom this month, while households average of R1.40 per kWh.
It costs Eskom 41 cents per kWh to generate electricity.
The price was calculated for Beeld newspaper by Johan Anderssen, a Cape Town based consulting electrical engineer who has researched the effect of the two aluminium smelters on Eskom’s finances.
Best-kept secret
Until Thursday, this formula was one of Eskom’s best-kept secrets. It was based entirely on the aluminium price and the exchange rate of the rand against the dollar. No provision was made in the contract for price increases.
It was signed by Allen Morgan, the then executive director of Eskom, who became the parastatal’s CEO in 1996.
A second contract for Hillside was concluded in 2001 because Billiton wanted to expand the factory by a third so it could smelt 750,000 tons of aluminium per year in Richards Bay.
That time, Eskom insisted on a small price increase mechanism. Despite this, the electricity price for the extended section of Hillside was currently between 12.88 and 32 cents per kWh.
According to the contract, this tariff was approved by national energy regulator, Nersa, on condition that other consumers should not be disadvantaged by it.
Eskom had been trying since 2009 to renegotiate the contracts for Hillside, but Billiton refused.
Eskom applied to Nersa late last year to review the contracts, but the review was delayed pending the court case brought against Eskom and Billiton by Media24 regarding access to the contracts.
Reported with Sapa
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