Careful of loose talk; BHP Billiton is about. The mining giant’s much-publicised halt on all business with Standard Bank, after ”a senior bank executive” suggested it close down its Hillside aluminium smelter to save energy, has been criticised as censorship.
The assertion is easy to understand, however, as the corporate spat comes at a time when debates on the power crisis should be deepened rather than stopped in their tracks, according to insiders.
The suggestion was reportedly made at a Business Leadership meeting in Cape Town late last month.
In the aftermath, Standard Bank has closed ranks around its frank talking executive, reported to be chairperson Derek Cooper. It refused to comment on the matter, other than to say it will ”engage” with BHP Billiton as part of its ”valued relationship” with the mining house. Cooper could not be reached for comment on the incident. Cooper is also the chairperson of Business Leadership South Africa.
BHP Billiton, however, defends its decision to suspend its business with the bank.
”The meeting where this happened was not a debating forum nor did it call for such debate. It was a set of recommendations put forward by big business on the issue of the power crisis,” company spokesperson Maredi Mogodi told the Mail & Guardian. ”We were not warned of any such suggestion that would be made by a senior representative of Standard Bank and certainly the view was uninformed and therefore, irresponsible.”
BHP Billiton is one of the largest consumers of electricity with its three aluminium smelters Hillside, Bayside and Mozal in Mozambique consuming upwards of 2 400MW of power. Suffice to say, BHP Billiton is tetchy about its electricity guzzling smelting business grounded in a country without the energy capacity to supply its operations. The company also has long-term contracts in place with Eskom to supply electricity to the smelters, though neither Eskom nor BHP Billiton will disclose what the company actually pays for its power.
In its defence though, BHP Billiton said: ”We do not know where the suggestion has come from that we pay less than ordinary consumers do for power. Hillside and Bayside buy electricity from Eskom under a long-term contract and the price is linked to the aluminium price on the London Metal Exchange.
”Aluminium has been performing very well for the past six years and because of this, both Hillside and Bayside pay more for electricity than other industrial or residential users in the country.”
BHP Billiton acknowledges that the smelters consume large amounts of power, but argues that they were built at a time when South Africa’s power was going to waste.
”This is a long-term investment and smelters are logistically not something you can turn on when it suits and turn off when there is a power shortage that was not of our making.”
BHP Billiton as part of the Energy Intensive User Group of South Africa (EIUG) was aware that South Africa did not have sufficient reserve margins of electricity. In a position paper released by the EIUG in 2006, it noted that the current national generation expansion plan could not supply South Africa with an adequate reserve margin.
However, the company says that despite expressing concern to Eskom and government on numerous occasions, it was always assured that Eskom had plans in place to address the situation.
The incident is testament to how much stress the shortage is placing on big industry and business leaders who have tried to put on a brave face while addressing black-outs and production losses.
BHP Billiton argues that its decision is not tantamount to censorship.
”This is a question not only of being better informed, but also courteous,” it said. ”The remarks made were unquestionably ill-informed and inappropriate and to an audience where this kind of suggestion would be taken seriously.”
The corporate drama plays out as the National Energy Regulator of South Africa (Nersa) released its timeline for making a decision on Eskom’s request for a 53% hike in electricity tariffs. Public hearings will be held on May 23 and the regulator will decide on the application on June 6. Whether the increase will be applied to all users including big industries remains to be seen.
Eskom’s Andrew Etzinger says that how the price hike will be implemented is ultimately in the hands of Nersa. He says, however, that Eskom’s call has been made with a broad application to all consumers in mind, including industry.
