BHP Billiton ‘expects’ Eskom to respect power deals

Eskom, which needs to generate cash to build new power stations to meet rising demand in Africa's biggest economy, has been trying to renegotiate the long-term preferential deals since 2009.

It has now asked the energy regulator to review the contracts, which are linked to the price of aluminium and the rand/dollar exchange rate and which contributed in large part to Eskom's annual loss of R9.7-billion in 2009.

In a letter to the Business Day newspaper, BHP Billiton South Africa chairperson Xolani Mkhwanazi said the contracts were negotiated in good faith on a risk-sharing basis and followed recognised international models.

"BHP Billiton expects our contracts to be honoured," he said.

The contracts with BHP, which consumes 9% of Eskom's power output, date from the early 1990s when there was abundant supply in South Africa, the legacy of a government policy of under-pricing power to attract industry.

Details of the deals became public last month after a court ruled in favour of a public information request by a newspaper.

Fast-rising electricity costs
The disclosure has fuelled criticism from industry and consumers who say they should not bear the burden of fast-rising electricity costs when BHP pays a fraction of the cost price.

Mkhwanazi defended the deals, saying in past years the contracts had benefited Eskom as well.

"Over the period of the contracts, BHP Billiton for many years paid above the standard electricity tariff for industry," he said.

"As a result of these contracts, Eskom has generated significant additional revenues and benefits, which have contributed to the cost of establishing the electricity generation and transmission infrastructure in South Africa."

Eskom has managed to change a similar deal it had with Anglo American's Scorpion zinc mine in Namibia.

The regulator is planning to hold a public hearing on the BHP contracts at the end of April. – Reuters

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