/ 6 April 2010

Eskom, BHP agree on changes to power agreements

Eskom and BHP Billiton have agreed to amend pricing agreements for power supplies to BHP aluminium smelters in South Africa and Mozambique, Eskom said.

Eskom seeks to raise more than $60-billion for investments to prevent a repeat of crippling blackouts in 2008. It is increasing power prices and renegotiating supply deals signed when it was able to charge much less for electricity.

Eskom said it would sign the final power agreements with BHP Billiton during the third quarter of 2010 and that they would require the approval of state power regulator, Nersa.

“This is a significant milestone that results in a new pricing path which will not be linked to commodity pricing and foreign currency,” Eskom said on Monday, without giving precise details.

It said the agreements would affect the Mozal aluminium smelter in Mozambique and two others, the Hillside and Bayside smelters in South Africa, the continent’s largest economy and a major mining hub.

Eskom, which has separate power supply agreements with other mining companies operating in South Africa, was granted an average of 25% in power tariff increases by Nersa for the next three years starting in 2010. .

THe country’s electricity is among the cheapest in the world, partly due to a government policy of underpricing power to attract industry. – Reuters