Oct 22, 2012
Eskom asks Nersa to review ‘prudency’ of aluminium contractsBack
Maputo|Melbourne|Natal|Africa|BHP Billiton|Eskom|Sustainable|Africa|Mozambique|Energy|Mining|State-owned Electricity Utility|Brian Dames|Mohamed Adam|Power|South Africa
© Reuse this
The aluminium-price-linked contracts, which were signed in the 1990s and are known to be highly favourable to the world’s largest mining company, have come in for ongoing criticism since the load-shedding crisis of 2008.
Hitherto, Eskom has indicated that it would seek a negotiated settlement with the Melbourne-domiciled company, as was the case with regard to the future supply of power to BHP Billiton’s aluminium smelter in Maputo, Mozambique.
In fact, CEO Brian Dames insists the group remains open to continuing negotiations with BHP Billiton in order to reach a settlement, but says the approach to Nersa followed on from several investigations and engagements and is currently regarded as the “most prudent way to deal with this matter”. He also highlights that all of its other large customers, including 184 municipalities, mines and factories, were now paying the regulated tariff.
BHP Billiton communications and external affairs VP Lulu Letlape said the group had been informed by Eskom of its intention to approach Nersa.
However, the company did not have a firm view on whether Nersa was the appropriate forum for a review of the Hillside and Bayside contracts, saying only that it would not "preempt the regulator’s decision on the terms of the review".
Letlape confirmed that the two companies had been unable to reach agreement on the KwaZulu-Natal smelter contracts, despite the successful Mozal negotiations of 2010.
Eskom’s head of regulatory and legal Mohamed Adam reports that the application is premised on the Electricity Regulation Act, which obliges both Eskom and Nersa to act in the best interests of the economy and the country.
Therefore, Eskom believes Nersa has the authority to intervene in the interests of a sustainable electricity industry and to ensure that the interests of all stakeholders are “balanced”.
The submission would be made in line with the general powers granted to Nersa in the legislation, as well as Nersa’s specific authority to adjudicate “discriminatory access or pricing”.
“Our view is that circumstances have changed and that [Eskom] as well as Nersa have an obligation to look into these contracts, given these changed circumstances.
“So, they do have the power to look into them and based on their conclusions will have the power, then, to take whatever action necessary to deal with their findings,” Adam said.
Nersa was likely to pursue an adjudication process that was transparent and consultative.
However, Adam refused to offer insight into the current losses associated with the contracts, noting that the current legal contest involving Media24 and BHP Billiton in relation to disclosure of contract details prevented him from offering further details.
But CFO Paul O’Flaherty indicates that the current negative value associated with the embedded derivatives recorded in its financial statements, listed at around R5-billion, is “the difference between a Megaflex price and what we are actually charging” the smelters.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Macro and Micro News
The Mineral Beneficiation Action Plan (MBAP), which is currently in draft form, should be finalised by the end of March 2015, the Department of Trade and Industry (DTI) has confirmed. The department is leading the drafting process, which also involves the National...
There were signs of progress this week on the long-awaited Tripartite Free Trade Agreement (T-FTA), which has been under discussion between the Common Market of Eastern and Southern Africa, the East African Community and the Southern African Development Community...
Deputy President Cyril Ramaphosa says the Expanded Public Works Programme (EPWP) has alleviated poverty in those areas where it has been implemented. Responding to questions for oral reply at the National Assembly on Wednesday, the Deputy President said the programme...
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
JSE-listed real estate investment trust (REIT) Rebosis Property Fund achieved a distribution growth of 8.1% to 99.45c per linked unit in the financial year ended August 31, despite volatile market conditions.
A low-cost, inflatable incubator won this year’s international James Dyson design award, which aims to encourage and inspire the next generation of design engineers.
The World Bank released its ‘Doing Business 2015: Going Beyond Efficiency’ report last month and ranked South Africa 43 out of 189 global economies for its ease of doing business, with Singapore topping the rankings.
Air Products South Africa officially launched its R300-million Eastern Cape air- separation unit (ASU), at its new manufacturing facility in the Coega Industrial Development Zone (IDZ), earlier this month. It is the second facility that Air Products launched in South...
BMW South Africa (SA) has signed a power purchasing agreement with energy company Bio2Watt. The offtake partnership will bring renewable energy to the carmaker’s Rosslyn plant, north of Pretoria.