Environmental organisation Earthlife Africa has welcomed the scrapping of Rio Tinto's plans for a smelter at Coega.

In a statement on Friday, it said that "sense was beginning to reign in the South African energy sector".

Late on Thursday, Eskom, the Industrial Development Corporation, the department of trade and industry, and Rio Tinto announced the company's planned aluminium smelter at Coega in collaboration with Alcan had been scrapped.

"This has saved South Africa billions in power generation capex, and marks the end of Earthlife Africa Jhb's three-year campaign against the smelter," the organisation said.

The 1350 megawatt smelter would have required Eskom to have effectively built a new coal-fired power station to service the smelter, which had a long-term supply agreement at favourable rates.

"While the exact tariffs to Rio Tinto were never made public, the estimate of 12 cents to 14 cents per kilowatt hour remains reasonable.

"This would have been another BHP Billiton situation, where a sweetheart deal with a wealthy multinational corporation is effectively underwritten by the public," Earthlife Africa said.

Further, cancelling this deal would prevent further negative effects on the global climate through the prevention of carbon dioxide emissions, it said.

"In a very real sense, the deal would have been a perverse global warming subsidy.

"South Africa's current power and tariff woes stem from a perceived need to supply large amounts of electricity to industrial and mining concerns (inside and outside of South Africa) at very low rates."

Earthlife Africa said the costs of these long-term contracts were only now becoming apparent with Eskom's latest tariff hikes.

"In research recently completed by Earthlife Africa Jhb, Eskom's costs have diverged from its revenues because of rising fossil fuel costs and that it sells the majority of its electricity below the average cost of production and, in some cases, below the actual costs of production."

According to Earthlife Africa, the reasons for this had been industrial policy and deals such as the one with Rio Tinto.

"The details of these deals are still hidden away from public scrutiny, despite the public being asked to bear 45 percent annual increases over the next three years.

Earthlife Africa's research had concluded that Eskom could not be a self-funding utility.

Nor could it internally finance capital expenditure unless industrial tariffs were raised and the practice of selling below cost of production was halted.

"To do this, the contracts between Eskom and its intensive users (inside and outside the borders of the country) would have to be examined in public and then renegotiated.

"Hiding behind commercial secrets is a sure way to decay the common good," the organisation said.

The DA, however, said Rio Tinto's decision to scrap its smelter plans because Eskom's electricity supply was unreliable and its proposed tariff hikes unreasonable, was "a largely self-inflicted economic blow of staggering proportions".

The DA's shadow minister for trade and industry Kobus Marais said South Africa's economy at large and the creation of new jobs in particular would both suffer dramatically.

"If Rio Tinto's decision becomes some sort of precedent or yardstick, against which other potential international investors gauge the economic climate in South Africa, there could be further consequences for other projects involving direct foreign investment," he said.

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