Global resources giant BHP Billiton has decided to
terminate R2,4bn worth of annual business *1 with
Standard Bank *2 after a top bank executive suggested at a recent
high-level business and government meeting that Billiton's
Hillside aluminium smelter be shut down to save electricity.
The fallout between the two corporate giants is the latest sign of
tension over SA's power shortage, which saw the mining sector shut down for four
days in January and forced to operate at 90% power last month , despite global
commodity prices reaching unprecedented highs.
Neither Standard Bank nor Billiton would name the person who made the comment.
Billiton operates two aluminium smelters at Richards Bay, Hillside and Bayside,
and one in Mozambique.
Last week the group said that it would close two potlines at Bayside, resulting
in a loss of about 800 jobs, to reduce the group's South African electricity
consumption by 10%.
In a letter sent to employees this week, Billiton SA chairman Vincent Maphai
said the remarks by the Standard Bank person at a Business Leadership meeting in
Cape Town were "reckless, provocative and irresponsible"
*3.
The suggestion of closing Hillside was based on the banker's belief that
it did not add any economic value to the country *4
and was consuming a great deal of electricity *6.
"This attitude is completely misplaced," Maphai wrote. " The fact that
several years ago *7 BHP Billiton initiated highly
capital intensive aluminium projects in the region to use capacity for which
Eskom did not have immediate use now seems to be ignored, even by those who
ought to know better. The smelters have become the backbone of the KwaZulu-Natal
economy, especially the Richards Bay area."
Business Leadership SA CEO Michael Spicer said the context of the remarks would
have been a meeting between very senior business executives and the government,
during which ideas to address the power crisis were exchanged. The Billiton-Standard
Bank matter was between them and it was not appropriate for Business Leadership
to comment on it.
Maphai said the decision to terminate business with Standard Bank on a phased
basis, starting with foreign exchange, money market accounts and guarantees, had
been taken with the full support of Billiton CEO Marius Kloppers and the group's
ferrous and coal division CE, Marcus Randolph.
Billiton spokeswoman Bronwyn Wilkinson said the reasons had been conveyed to the
bank.
Standard Bank acknowledged in a statement that it had received correspondence
from Billiton about the national electricity challenge.
"Standard Bank has a valued relationship with BHP Billiton, having provided it
with a range of banking services for many years, and we will engage with BHP
Billiton on this particular matter as a part of this relationship," it said.
International rating agency Standard & Poor's MD in SA, Konrad Reuss, said he
could see logic in the argument that SA should delay or
avoid building new aluminium smelters because they were so energy intensive.
But the argument in favour of existing smelters was the same as it was for SA's
sales of electricity to neighbouring countries: there were
contracts in place *8.
In any case, Reuss said, electricity prices in SA would have to rise
irrespective of whether new aluminium smelters were built. SA had enjoyed very
cheap electricity and to attract new investment in the electricity sector, it
would have to establish a tariff that enabled investors to make a profit.
With acknowledgements to Charlotte Mathews
and Business
Day.
*1No wonder Business Day failed to
publish my letter dated 4 February 2008.
But in any case the Mail & Guardian picked up the essence of my piece and
published it as Crisis II on 9 February 2008.
*2Hurrah to Standard Bank.
*3Nonsense, such discussions are mature and responsible.
*4Billiton Aluminium is probably worth about R5 to R10
billion per year to the economy.
The RSA's old indigenous mines are probably worth about R500 billion per year to
the economy.
Eskom load dumping can cause between R250 billion and R500 billion losses to the
RSA economy.
R5-odd billion in foreign exchange per year is also small potatoes.
Moral relativity maybe true but on the balance of inconvenience aluminium
smelters must supply their own power *5 or purchase it from the public
owned-utility at normal industrial rates, as long as sufficient is available.
*5What is sick in this case is that Billiton is also one of
the biggest suppliers of coal to Eskom.
So it sells coal at a good margin and then uses the derivative of coal which is
electricity at a discount rate.
*62 700 MW of power and nearly 20 000 GWh of energy per
year - more than that of a city the size of Cape Town.
*7That's right - "several years ago".
Times have changed. Eskom cocked up.
But in any case the rider is as the man says, Eskom then had excess capacity.
They no longer have.
Closed the aluminium smelters down - sue Eskom and let the Supreme Court decide
the balance of convenience - a foreign-owned carbon emitter using foreign mined
aluminium ore, or 48 million South Africans.
Maybe Pinnoccio Erwin can pay Billiton Aluminium's and Rinto Tinto Alcan's
damages.
*8Just because a contract is in place doesn't mean that 48
million South Africans should subsidise a foreign-owned profits and suffer R500
billion year to their economy and 12 hours per working week in Eskom load
dumping.