Western Cape Business News

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ELECTRICITY: Eskom's 'Sweetheart Deals'


Recent Western Cape Business News

THE Cape Chamber of Commerce says it would like to see a full and transparent investigation into Eskom’s “sweetheart deals” with the aluminium smelting industry.

It has become clear that South African consumers are subsidising the cheap electricity used by the smelters and we can no longer afford to do so,” said Mr Albert Schuitmaker, Acting Director of the Chamber.

The smelters were the main reason for Eskom’s R10 billion loss last year and we know that Eskom has failed to deal with the problem, despite an instruction from the Eskom Board to the former CEO to renegotiate these contracts.”

Eskom has been secretive about the deals and has refused to disclose details, claiming that they are confidential and that the 30 to 40-year contracts were negotiated when there was surplus generating capacity.

The BHP Billiton smelters import bauxite aluminium ore from Australia and use subsidised Eskom electricity in arc furnaces to produce the metal which is then exported. In effect, South Africa is exporting electricity.

Mr Schuitmaker said the smelters sustained mining jobs in Australia and manufacturing jobs in the countries which bought the aluminium, but the question that had to be answered was how many jobs they sustained in South Africa and whether the electricity could not be used more productively in local mining and industry.

Eskom’s claim that the deals were made in the eighties is not correct. The small Bayside smelter at Richards Bay dates back to 1973. Construction of the Hillside smelter, also at Richards Bay began in 1993 and first metal was cast in 1995.

By this time surplus capacity was shrinking and in 1998 Eskom applied to the government for permission to build a new power station as the country would need new capacity by 2006. The application was approved by Nersa but turned down by the government. Former President Thabo Mbeki later apologised for the mistake.

Despite this, Eskom agreed to supply electricity to another Billiton project in Mozambique. The arrangement was a more complicated as South Africa would also import hydro electric power from Mozambique but Eskom supplied the electricity to Mozal One and then Mozal Two at prices we are now subsidising.

To make matters worse, Eskom agreed to supply yet more electricity to the Hillside smelter and in 2003 production at the smelter was increased by 60 percent. In addition it guaranteed power for yet another smelter as part of the Coega project near Port Elizabeth.

What is almost impossible to understand is how Eskom could have entered into 30 and 40 year contracts when it knew the surplus would disappear and the country would need new power stations by 2006,” Mr Schuitmaker said.

If the smelters were closed down there would be penalties, but an additional 1 200 MW of power would become instantly available and that would be like bringing a new power station on line.

Mr Schuitmaker said there was a need for a formal inquiry into the smelter contracts and other possible sweetheart deals. “We need to know whether any corruption was involved and how we can end or renegotiate the contracts. We cannot tolerate a situation where some Eskom customers are treated better than others.”



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