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.
Roger Toms
Hout Bay
Gas finds are no easy cure for Africa’s woes
Ichumile Gqada makes some interesting points in his long-winded Business Report article “Africa’s energy boom must be managed carefully” on September 19, which could have been condensed.
If almost everyone in sub-Saharan Africa has trillions of cubic feet of natural gas, who will it be sold to? And if it cannot be sold at a good profit externally, in what way will the improvement of energy availability jump-start the economy which labours under restrictive employment practices and labour legislation and an unskilled workforce?
Gas can be distributed via pipeline or in a liquid form, which requires expensive infrastructure. Who will pay for it? African governments are notoriously corrupt: how does the voting population ensure that the spoils are equitably allocated? As gas is a limited long-term resource, what percentage of this will be allocated towards developing sustainable, renewable energy?
My personal opinion is that the public has been spun many stories in the past involving cheap energy. The energy industry is in the hands of entrenched multinational explorers and producers whose shareholders want a solid return on their investments and who are adept at manipulating unsophisticated governments. There still is no such thing as a free lunch. Do we really want another arms deal catastrophe?
Robert de Vos
Cape Town
Why not also boycott Shell over fracking?
If we are going to label all Israeli goods, why don’t we as a nation boycott all Shell service stations and products because of fracking in the Karoo? Just asking.
Arthur Talbot
Gauteng
Selectors of leaders need serious rethink
Eighteen years in power has led to this situation; it warrants serious introspection!
No longer can the voter accept this third-class, third-world service in a country that has over 200 A-listers in a recently listed financial “Who’s Who”, courtesy of opportunities gained through contacts, and solely responsible for the greatest rich-poor gap this great country has ever witnessed.
As Marikana enters into the ugly pages of post-1994 history, those who put our current leaders in power need to go back to the drawing board as we approach two important milestones, Mangaung and 2014.
AR Modak
Johannesburg