BHP Billiton power deal will cost heavy on Eskom

After a long time, Eskom has responded to public pleading for information on its sweetheart deal with BHP Billiton to supply cheap power to the Hillside and Mozal aluminium smelters.

A few days ago, Eskom chief financial officer Paul O’Flaherty treated the nation to a lesson in modern arithmetic when he announced that the residual seven to eight years of the BHP Billiton “contract” would result in an accumulated loss to Eskom of R5.5 billion. Based on an ex-generator delivery of 2 000 megawatts (MW), that represents a loss of about 4c a kilowatt-hour (kWh) while Eskom’s present unit cost of production is declared at some 50c/kWh.

Why Eskom must pay world prices for its coal is another matter, but one would suggest that Eskom’s calculations are a best-case estimate, with the worst-case being greater by orders of magnitude.

What the country needs to know is the present ongoing loss incurred by this sinful arrangement, which probably landed Derek Keys, then minister of finance, one of the top jobs at Billiton: it is essentially the theft of power desperately needed by the country.

The country is still not privy to the contents of the BHP Billiton contract, but the DA estimates that the power is being “sold” at 10c/kWh.

Assuming that to be a politically warped number, let’s use a “price” of double that, that is, 20c/kWh, resulting in a direct loss of 30c/kWh. Simple arithmetic results in a present annual loss of R4.8bn, roughly 5 percent of the cost of Medupi.

To add insult to this considerable injury, Eskom has bought back, at some cost, large chunks of power from major revenue-earning consumers which are then shut down in preference to supplying BHP Billiton, resulting in loss of valuable employment.

There can be little doubt that the Eskom contract with BHP Billiton was essentially criminal in nature, irrespective of its signatures, and Parliament should force Eskom to declare force majeure on its provisions, rather than forcing it to deceive the nation.

Otherwise, Eskom should surely use some of its expensive talent, at an average R500 000 a person a year, to simply pull the plug on the aluminium smelters and leave the consequences to its much more expensive lawyers.

Surely the consequences cannot be worse than depriving the nation of a precious power supply which it has paid for.