2 April 2013 – Although natural resources group BHP Billiton insists it has been paying above market rates for electricity in generation-capacity constrained South Africa, recent information released following a court case instigated by the Media24 group indicates otherwise. The court case forced disclosure on what the company’s aluminium smelters in South Africa and neighbouring Mozambique pay for South African generated electricity.

Beeld and Media24 reported that the negotiated pricing agreement sees the company pay Za23c/kWh at the Hillside smelter (this deal covering two thirds of the 1,200 MW power requirement of the smelter) in South Africa and Za34c at Mozal, which is well below the cost of generation of over 40c/kWh and below the 60c/kW paid by other Eskom customers.

Thus details of the electricity supply contracts between BHP Billiton and South Africa’s power utility Eskom that emerged in March, imply a subsidy of about R3 billion a year towards BHP’s electricity prices.

As a result South Africa’s energy regulator says it will start a public hearing at the end of April to review the power deal set up the 1990s between state-owned Eskom Holdings and BHP Billiton. At that time South Africa had excess energy capacity and was trying to attract companies to promote industrial development.

Eskom had already requested the review of the contract in October 2012. Eskom has been trying to renegotiate the agreement with BHP since 2009. ”While the agreements will now be in the public domain, we remain firm in our belief that the negotiated pricing agreements are legally binding,” BHP says
BHP entered into its initial contract with Eskom in 1992, with the contract to run until 2028.