Eskom could suffer a loss of up to R5.5bn over the next eight years on its below-cost electricity supply agreement with aluminium giant BHP Billiton, Parliament heard yesterday.

In terms of a special pricing agreement with Eskom, which is clouded in secrecy, the world’s biggest resources company by market value pays a cheaper rate for electricity than most consumers in SA. The rate is linked to the open market price of aluminium from its smelter in Richards Bay.

It also emerged yesterday that the government has been a stumbling block to Eskom renegotiating the contract, which CEO Brian Dames has conceded is "undesirable".

Democratic Alliance MP Pieter van Dalen claimed in the National Assembly last week that BHP Billiton was paying 8.8c-10c/kWh as the aluminium price was at a record low. Household consumers pay 120c/kWh.

Eskom has been trying for some time to persuade BHP Billiton to accept a renegotiated contract. Board member Collin Matjila told the portfolio committee on public enterprises that the failure could not be laid solely at the utility’s door as the "competing needs of government" on how to deal with the contract had also played a role.

An interdepartmental committee established to guide Eskom on the contract had differed on what the government wanted to achieve from cheap electricity pricing. Eskom had renegotiated three of four similar special pricing arrangements with other energy-intensive users, most of which were signed before 1994 when it had excess electricity capacity.

Eskom financial director Paul O’Flaherty stressed that the R5.5bn forward estimate (as at end-March) of the accumulated liability built up over a number of years on the BHP Billiton contract was based on future projections of electricity and aluminium prices and the rand-dollar exchange rate until 2020, when the contract ended. These assumptions could change and Eskom could again gain from the contract.

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