MAC: Mines and Communities

South Africa's Eskom slapped with law suit

Published by MAC on 2010-03-24
Source: South African Times

Plaintiffs claim coal utility is concealing pricing deals

South Africa's biggest power utility, Eskom, has not only been under fire over its plans for a massive coal-fired power plant.

It's also accused of deliberately under-selling electricity to companies like BHP Billiton - the world's biggest mining conglomerate - at the expense of the country's other users. See:

Last week, the Afrikaans news service, Sake24, took Eskom to court, demanding it reveal the actual charges it makes to BHP Billiton.

Unsurprisingly, the government is backing the utility.

Sake24 takes Eskom to court

By Sapa, South African Times

18 March 2010

Sake24 has lodged a high court application to force electricity utility Eskom to reveal the tariffs it charges BHP Billiton, one of the world's largest mining companies, Beeld reports.

Sake24 wants to know how much its aluminium operations in Richard's Bay and Mozambique pay for electricity.

This comes after an investigation by Sake24 journalist Jan de Lange which showed that these operations used as much power as cities such as Durban and Cape Town.

Beeld said the tariffs BHP Billiton paid were lower than what it cost Eskom to generate the electricity.

Eskom has declined to reveal how much BHP Billiton pays.

Sake24 wants a court order to force Eskom and BHP Billiton to make the information public.

South African consumers, already suffering after the global recession, are facing a 25 percent hike in electricity prices every year for the next three years.

Hogan doesn't give Eskom deal details

By Sapa - South African Times

19 March 2010

Public Enterprises Minister Barbara Hogan on Friday refused to reveal details of Eskom's long-running contracts with foreign companies like BHP Billiton that contributed to the entity's R9.5 billion loss last year.

Hogan told Parliament's portfolio committee on public enterprises she could not bow to pressure to do so because some of the companies were in competition with each other and indiscretion would make Eskom look "silly".

"There are mines that are in that world that are in competition with each other. There are Eskom customers that are competitors.

Now we can say let's make this all open to everybody, which will make us look pretty silly," she told MPs.

Eskom is under intense media pressure to reveal details of its 25-year contract with mining giant BHP Billiton.

Sake24 this week asked for a court order forcing Eskom to reveal the price at which it supplies electricity to BHP Billiton's two aluminium smelters in South Africa.

They reportedly consume more than 5.6 percent of Eskom's electricity output at discounted prices because of a clause in the contract linking the tariff to the aluminium price, which nosedived during the global economic crisis.

Sake24 claims that if Eskom were to break the contract, South Africa's energy crisis would be at an end. However if it continued as is, it would run into more trouble as its exposure to demand linked to aluminium prices is set to increase dramatically.

The troubled national electricity supplier has refused to make public the details of the deal on the grounds that it would be detrimental to BHP Billiton's commercial and financial interests.

Hogan said her department was intent on renegotiating contracts concluded by Eskom during the apartheid-era to attract investment into South Africa which have since become burdensome to the company because of the preferential pricing clauses.

"The matter is being pursued actively at the moment. In the days of free electricity we could afford such expenditure. Nowadays that is problematic," she said.

Hogan said reports that Eskom was stuck with 138 such deals were baseless.

"Let me make very clear that there is not a notion here that Eskom is engaged in a myriad of confidential secretive agreements that are not regulated. "

There were a "small number" of such deals and their terms were not being hidden from government, Hogan said, adding that she had been briefed on them by acting Eskom CEO Paul Makwana.

"I have received a confidential briefing from him on those matters so I do have sight of what these matters are about. We too are equally concerned."

She was responding to a question from MPs on whether the state had any say in major contracts concluded by Eskom.

The preferential pricing contracts are seen as part of the reason not only for Eskom's losses but for annual 25 percent tariff increases that will be imposed on South Africans to make up the shortfall in funding for its infrastructure expansion programme.

Acting director general of public enterprises Sandra Coetzee confirmed that before concluding significant contracts, state-owned enterprises had to seek the approval of the department.

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