In the midst of a national grid meltdownwhich closed the mining industry, BHP Billiton’s three aluminium smelters, powered entirely by Eskom, were up and running — despite being some of South Africa’s greediest energy guzzlers. And the government appears determined to press ahead with establishing another massive smelter, the Rio Tinto Alcan plant, at Coega in the Eastern Cape. The combined energy consumption of BHP Billiton’s smelters — the Hillside and Bayside plants in Richard’s Bay and the Mozal plant in Mozambique — and the proposed Rio Tinto/Alcan smelter, will total 3 750MW.
Load shedding in recent weeks hastypically run at about 3 000MW, while the proposed Medupi power station in Limpopo will create 4 700MW of generating capacity at a cost of R79-billion. Billiton says its plants employ a total of 10 000 workers, including contractors, while the Coega smelter will create 1 000 permanent jobs in addition to 6 000 jobs in the construction phase, according to Earthlife Africa. The total mining industry workforce stands at about 400 000.
Commentators point out that the melters are effective exporters of South African electricity, as they merely process bauxite, which is not locally mined and must be imported. Secrecy shrouds the terms of Alcan’s deal with Eskom, but Earthlife Africa estimates that the company will receive its electricity at 12c a kilowatt hour — well below the current subsidised industry rate of 17c/kWh. Domestic users, facing a 14% hike, pay about 30c/kWh.
University of KwaZulu-Natal academic Patrick Bond also believes the company will receive a R2-billion tax break. The initial outlay is projected at R20-billion, but the state is looking to pay R12-billion of this because Alcan is only willing to foot 40% of establishment costs. Some policy analysts pose the question of whether South Africa would not be better served in the long term by buying the smelters and closing them down. The plants cannot be temporarily closed as this would cause massive damage to the ‘pots†used to process aluminium and Billiton’s smelters have continued operating despite the power cut.
‘Our contracts do have interruptibility clauses, in terms of which Eskom can shed power to the potlines when they cannot reach demand,†said BHP Billiton spokesperson Bronwyn Wilkinson. ‘We work closely with them to minimise the impact on production and risk to the otlines. We have experienced ongoing load shedding for some months now as Eskom has battled to meet demand. The aluminium smelters are not compensated for this.†Wilkinson refused to reveal what the company pays for its power. ‘We don’t disclose our commercial agreements with Eskom.â€
Wilkinson did say, however, that in line with government’s request that big industrial users cut down power use by 10%, BHP Billiton will be taking some of the pots out of their potlines ‘in a controlled fashionâ€. This will save about 240MW. While Billiton’s contracts with Eskom were reached in the late Eighties and Nineties, when South Africa had surplus electricity, the tariffs granted to the proposed Rio Tinto Alcan smelter were negotiated in terms of the department of trade and industry’s developmental electricity pricing programme (DEPP).
This aims to lure foreign investors through the inducement of Eskom power, which remains among the world’s cheapest. A built-in confidentiality clause prevents officials of the department of trade and industry, the National Electricity Regulator, Eskom or non-
Eskom distributors from revealing the prices given to foreign investors under DEPP contracts. Answering Mail & Guardian questions this week, Public Enterprises Minister Alec Erwin said that closing the smelters would mean a significant loss of foreign currency when the country needed it to import power equipment.
‘The amount of money we would absorb doing it when our growing economy will need new power stations anyway — with or without smelters — is not a wise allocation of funds,†Erwin said. He added that aluminium was a vital modern metal and that having supplies of it in South Africa ‘increasingly benefits our wider manufacturing sectorâ€. ‘The value added to the coal used for electricity for smelters is far greater than that coal being exported. However … we would not contemplate any large aluminium smelters after the Alcan one.†Tony Patterson, of the Aluminium Federation of South Africa, argued that despite the high energy input required for primary aluminium production, once the metal has been produced, it effectively serves as an ‘energy bankâ€.
Recycling aluminium uses a mere 5% of the energy required to manufacture primary aluminium and more than half of global demand for aluminium is met by recycling, he said. Patterson said local demand for aluminium stands at about 200 000 tons a year. The metal is used by the motor manufacturing, packaging, pharmaceutical and fuel industries. He argued that it made better sense to manage electricity capacity more effectively than to close to the smleters.
