BHP Billiton’s signboard outside Richards Bay. Picture: SUNDAY TIMES
BHP Billiton’s signboard outside Richards Bay. Picture: SUNDAY TIMES

ESKOM is yet to conclude a renegotiated contract with BHP Billiton for the group’s aluminium smelter in Richards Bay, KwaZulu-Natal, Eskom spokeswoman Hilary Joffe said on Wednesday.

The delay in the conclusion of the deal could be an indication that negotiations between the two companies are proving difficult. Failure to renegotiate the deal means Eskom will continue to supply power to the smelter under the commodity-linked contract — a move that exposes the utility’s balance sheet to the volatility of the aluminium price.

Eskom has in the past suffered book-value losses because of the contracts, but in the past financial year Eskom reported a net fair value on embedded derivatives of R334m. In the 2011 financial year it suffered a net loss of R1.3bn.

In the 2010 financial year, Eskom made a R2.3bn gain.

Democratic Alliance (DA) MP Pieter van Dalen on Tuesday said BHP was paying 8.8c/kWh-10c/kWh.

"The crux of the matter is this: at the time when I revealed that this company is paying 13c/kWh or per unit, we were paying an average of 60c/kWh. The information I have now is that Billiton is paying 8.8c/kWh-10c/kWh while we are paying 120c/kWh as the aluminium price is at an all-time low," he said.

The new allegations that BHP, the world’s largest diversified natural resources company, pays electricity prices far below those paid by other Eskom customers will harden attitudes towards the utility’s request for another round of above-inflation tariff hikes. Eskom has yet to submit its tariff application to the National Energy Regulator of South Africa.

The exact basis on which the special prices were determined remain unclear. Hopes of uncovering this information now hinge on the outcome of a high court case between media group Media24 and BHP. Media24 last year won a court action to make public the special pricing agreements.

BHP then appealed. Ms Joffe said the details of the contracts with BHP would remain confidential until the outcome of the appeal.

"We said we will abide by the court decision to disclose the details of the contracts," she said.

She would not comment on figures released by the DA, saying the prices were the subject of the court case. She said the commodity-linked pricing deals were signed when Eskom had surplus capacity. With electricity cheap, it was a good idea to attract investments in energy-intensive industries, she said.

Eskom has said revenue from these contracts was linked to commodity prices and currency rates.

In 2010 Eskom and BHP reached an agreement on an amended power-supply contract for the Mozal smelter in Mozambique.

Eskom has so far not been able to renegotiate the last of the special agreements with BHP. Ms Joffe said Eskom wants to continue to interrupt power supply to BHP in times of severe power constraints without compensation. As part of the agreement between Eskom and BHP, Eskom can cut supply to BHP to give relief to the national grid.

She said in terms of the contract, Eskom may turn off supply to BHP for up to two hours a week when there are electricity shortages.

The utility compensates other energy-intensive users for reducing electricity usage.