[miningmx.com] — ESKOM has seriously considered “buying back” the supply contract for BHP Billiton’s Hillside aluminium smelter, but it was too expensive.
A transaction such as this would in effect have meant that the enormous Richards Bay would close, according to a reliable source at Eskom.
Although up to 800 employees at the plant would be in danger of losing their jobs, such a move could’ve also solved the country’s electricity problem as Hillside consumes about 1,200MW of Eskom’s 37,000MW generation capacity.
On Friday, at a quarterly information session at the electricity giant’s head office at Megawatt Park, Eskom chief executive Brian Dames made it clear that there was a very serious threat of more power cuts during the coming winter. The electricity shortage will indeed be at its most serious in the next five years.
On top of that, the incident at the Duvha power station early in February – when a turbine generation unit was destroyed during a legally compulsory test – has rendered Eskom unable to perform adequate maintenance work on its the unit before the start of winter.
Dames did not mention Hillside by name, but in his presentation said that Eskom believed an emergency solution could be the repurchasing of existing supply contracts. According to the utility’s calculations, 2 000MW could be saved in this way.
Responding to an enquiry as to the cost of buying back the Hillside contract, Dames said he did not have the figure.
But Eskom financial director Paul O’Flaherty, in a submission to parliament last month, said that the negative value of the contract for the remainder of its lifetime stood at R6.2bn. That was the loss that Eskom would incur from cancelling the contract’s remaining term.
But no-one knows how long the contract still has to run. In August 2009 Eskom announced that it was renegotiating the BHP Billiton contract, which was based on derivative instruments, including the aluminium price on the London Metal Exchange, because of the losses and their effect on Eskom’s financial statements – but these negotiations have still not been finalised.
In January this year Dames said a new contract could probably be signed in the first quarter, but declined to give further details when questioned about the delay in Friday’s briefing session.
A similar contract for the supply of electricity to Mozal was re-negotiated in April last year.
The price at which Eskom was supplying electricity for both contracts was kept secret for many years, but a Sake24 court application to force Eskom and Billiton to disclose the prices will be heard in the South Gauteng High Court in Johannesburg on Monday and Tuesday.
