Publication: Business Day Issued: Date: 2009-08-27 Reporter: Bloomberg

BHP Billiton electricity contracts under review

 

Publication 

Business Day
Date 2009-08-27
Reporter Bloomberg
Web Link www.bday.co.za



Eskom Chief Executive Officer Jacob Maroga. Photo: Business Day


BHP Billiton Ltd.’s electricity contracts are under review in South Africa after aluminum price- linked agreements contributed to a record loss by state-run power utility Eskom Holdings Ltd.

“We need to review this so all the players can deal with the risks associated with” commodity-linked pricing, Eskom Chief Executive Officer Jacob Maroga said in a speech in Johannesburg today. BHP is Eskom’s largest aluminum producing customer and Eskom’s earnings from supplying electricity to its aluminum smelters depend on metals prices and exchange rates.

Following an expansion in the 1970s and 1980s, Eskom had excess capacity and South Africa offered metal producers such as BHP tariffs linked to commodity prices, Maroga said. That now needs to change as Eskom grapples a “tight” balance between supply and demand, he said.

Some metal-price-linked contracts have 15 to 20 years left to run, Maroga said. “We are going to have to do something with our customers to remove exposure,” he said. Maroga declined to say what options are available for “limiting or removing” Eskom’s exposure to this type of contract.

“In times of high aluminum prices, BHP Billiton pays significantly higher than standard tariffs to Eskom, but in times of low aluminum prices, the price of power is lower than the standard tariff,” the company said in an e-mailed response to questions today.

Metal-price-linked contracts are a “huge issue” for Eskom, Maroga said today after the company announced a R9.7bn loss for the year through March. “The biggest issue has been the aluminum price tanking,” he said. The price of aluminum for delivery in three months halved on the London Metal Exchange in the fiscal year as global recession cut demand for metals.

With acknowledgements to Bloomberg and Business Day.


What absolute dingbats.

Not only has aluminium production bankrupted Eskom, but is a major contributor to the price of electricity increasing from about 30 c /kWh to the current 55 c/kWh (incl. VAT and environmental levy). This is going to increase to R1,00 and then R1,50 per kWh in the very near future.

Not only that, but electricity consumption due to aluminium production was a major contributor to all the loadshedding over the last couple of years.

Load shedding has cost this country very dearly.

Literally billions of rands have been spent by the tax-paying, Eskom paying public on buying generators, diesel, petrol, UPSs, batteries, solar panels, wind turbines, cabling, electricians, consultants, etc. trying to avoid the disasters caused by power outages just so that Eskom can sell power to Alusuf at a quarter of the normal price.

And then there's the cost of post outage recovery and also lost production.

If one adds all of this per year it probably comes to R20 billion.

Then Eskom posts a loss of R10 billion for the year.

It's sick.

It makes the Arms Deal look like a flea bite.

The board of Eskom should be behind bars for criminal stupidity.

So should Alec Erwin and all the other smart Alecs in the Department of Public Enterprises, the Cabinet, et al.

But wait, there's more.

Smart Alecs Incorporated wanted a very big new aluminium smelter at Coega as part of the Arms Deal industrial offset.

Dingbats turned to straight up arseholes?


[Tip for the Investigators - go find out where the money went to when Eskom says they were actually making a profit out of selling electricity to Alusaf (in this country and Mozambique) plus selling electricity to our neigbouring countries.]