Eskom wins again?

If the smelters close down people would lose their jobs and Richards Bay municipality would receive a smaller income, but South Africa would have more power, which would mean more time to build power stations

Fin24’s sister publication Sake24 on Friday won a long legal battle in which the Court of Appeal ruled that BHP Billiton must make public the prices it pays Eskom for electricity.

Eskom is making massive losses because of the low prices that BHP Billiton is paying.

The country would hence not have had an electricity crisis if Eskom had not supplied power to BHP Billiton's two aluminium smelters, Hillside in Richards Bay and Mozal in Maputo.

According to Sake24’s information, these two contracts are entirely responsible for the R9.5bn loss Eskom suffered in the year to end-March 2009, which it blamed on “derivatives”, an accounting term for prices that are calculated on the basis of external factors.

The two BHP Billiton smelters alone use 5.68% of Eskom's power generation capabilities, and all indications show they may receiving the power at lower than cost price from Eskom.

Hillside, the bigger of the two smelters, uses 1 200MW, which makes it the third biggest electricity user in the country. This usage is only surpassed by the cities of Cape Town and Durban, which each uses 1 300MW.


About 40% of Eskom's total sales go to municipalities, which Eskom supplies in bulk, while they in turn supply electricity to households and businesses in their areas of supply.

According to Friday’s notification, urban municipal authorities would be charged increases of 7.1%, and those in rural areas 12%.

Major industrial users, typically mines and industrial groups like Sasol, would be charged 9.6% increases, while rural businesses serviced directly by Eskom – typically farms – would pay 9.3% more.

As per the earlier determination, increases for households that consume less than 350kWh would be charged increases of 5.6%. They would pay 7.6% more for consumption of more than 350kWh.

This group represents about 3 million customers.

Suburban consumers who receive their electricity directly from Eskom would pay 8% more.

The Chamber of Mines, whose members would typically pay a 9.6% increase, said the hike was slightly lower than expected, but could still put more unnecessary pressure on parts of the sector that are experiencing pressure.

Dick Kruger, the head of technoeconomics at the Chamber of Mines, said: “We were expecting 10%, but anything more than inflation is not good. There are a lot of mines out there that are not making money and this will only make things worse.”

According to information leaked to Pieter van Dalen, the DA's former spokeperson on public enterprises, Billiton pays between 5c and 8c per kilowatt-hour (kWh) for electricity.

Economist Mike Schüssler says that should this figure found te be correct it means that Johannesburg consumers pay at least ten times more for electricity than what Eskom charges Billiton.

Thembani Bukula, chairperson of Nersa's sub-committee on electricity said that one of the options following the forthcoming process was that the contracts with Billiton could be declared invalid.

The question is to what extent these secret contracts contributed to the recent tariff increases endured by consumers.

Nrse could decide to increase the tarrifs chared to Billiton. According to Schüssler this could reduce future tariff increases.

Should Billiton even decide to shut down its aluminium smelters, because electricity would be too expensive, it would reduce the burden on Eskom.

According to Schüssler, Eskom would not be under so much pressure to complete the new power stations, because Billiton is one of the country's largest power consumers.

“If the smelters close down people would lose their jobs and Richards Bay municipality would receive a smaller income, but South Africa would have more power, which would mean more time to build power stations.”

From the above it would seem that Eskom just cannot lose.

Eskom dishes out "performance" bonuses to their executive for failing to maintain their grid, their power stations or sub-stations and for failing to build and grow the power supply network.

They enter into agreements with companies like Billiton and then economists reckon it would be ok to shut down a whole town and let thousands of people lose their jobs as long as it would bail out Eskom once more by giving them more time to build power stations they should have built years ago already.

They suddenly wake-up and realise they've spent all the money on bonuses and then demand higher tariffs for even more bonuses and to fund some expansion with what is left.

Imagine an economist feeling nothing for people losing their work and towns closing down because of major smelters closing down, which would also mean that SA would not be refining aluminium as we used to, eventually forcing us into importing every bit of aluminium we need, as long as Eskom is ok.

It seems Eskom wins again, while SA loses, as always.

Source:
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