Global miner Rio Tinto scrapped its plan to build an aluminium smelter on the southern coast of South Africa due to power shortages in the country, it said in a statement on Thursday.
Rio Tinto has been delaying the project due to an electricity crisis that brought the country to a halt last year.
”Although some progress was made in discussions regarding the supply of electricity to the Coega aluminium smelter project, it was insufficient to proceed,” the company said in a joint statement with the South African government and the power utility Eskom .
Eskom has been rationing electricity since early last year when the national grid nearly collapsed, forcing mines and smelters to shut and costing the biggest economy in Africa billions of dollars.
Eskom has since launched a R385-billion expansion programme to boost supply, but has repeatedly said that the system continues to be tight, especially as the utility struggles to raise more funds to expand further.
The parties said they have terminated their agreement for a future supply of electricity to the 720 000 tonne greenfield smelter, struck between Alcan — later bought by Rio Tinto — and Eskom in 2006.
The parties said they may open up discussions on the project again in the future.
”We remain ready to assist South Africa in realising the considerable benefits of a smelter project in the Port Elizabeth area,” said Guy Larin, vice-president for Africa business development at Rio Tinto Alcan.
He said the company has so far invested about $130-million in the project, originally scheduled to start construction in September last year.
”Elements such as a long-term, competitive power supply agreement, are essential and would need to be re-negotiated. We fully understand that conditions surrounding the availability and forward pricing of power in South Africa have shifted significantly in the last two years,” he said.
Eskom is pushing for steep tariff increases to pay for the new power plants, which analysts say could deter future investments in the country.
South Africa has for decades enjoyed one of the world’s cheapest electricity tariffs after the government deliberately pursued an underpricing policy to boost investment in the country.
The utility was granted a tariff increase of 31,3% this year and 27% last year, and has another application for annual increases of 45% for the next three years pending with the national energy regulator. – Reuters