Eskom deal with BHP Billiton akin to power theft

After many months, more like years, Eskom has responded to public pleading for information on their sweetheart deal with BHP Billiton, to supply cheap power to the Hillside and Mozal aluminium smelters.

A few days ago Paul O’Flaherty (Eskom’s chief financial officer) 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 2000 megawatts, that represents a loss of something over 4c per kilowatt hour while Eskom’s present unit cost of production is declared at some 50c/kWh. To believe this is akin to O’Flaherty’s belief in leprechauns as the arithmetic is based on some wondrous crystal ball-gazing to estimate the future aluminium price, rand/dollar exchange rates, and world price of coal.

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.

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, 20c/kWh, resulting in a direct loss of 30c/kWh. Simple arithmetic, without resort to any sort of crystal ball, 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.

There can be little doubt that the Eskom/BHP Billiton contract was essentially criminal in nature, irrespective of its signatures, and Parliament should force Eskom to declare force majeure (or vis major) on its provisions, rather than forcing it to deceive the nation. Otherwise, Eskom should surely use some of its expensive talent to simply pull the plug on the aluminium smelters and leave the consequences to their much more expensive lawyers. Surely the consequences cannot be worse than depriving the nation of a precious power supply.

Roger Toms

Hout Bay

Not all farmers have same operating cost

Open letter to Tony Ehrenreich: Please excuse the familiarity but you are a man of the people. I hold no brief for anyone in the De Doorns dispute, apart from decrying the now obligatory use of gratuitous violence, but your assertion in Business Report of November 8 that all farmers in the Hex Valley have the same costs has reference.

I worked in the valley for many years on investigating groundwater issues and, excuse the pun, I don’t think this simplification holds water. Some farms have deep groundwater, others shallow, some have plenty of good quality groundwater others have groundwater that is too saline for irrigation of vines. Alternatives are the Sanddrif government scheme, local irrigation boards, own dams and the aforesaid groundwater, all with differing costs.

I don’t think all farmers have the same costs at all.

Peter Rosewarne

Cape Town

Pool of potential SOE leaders is drying up

Thinking about the impending departure of Telkom’s chief executive Pinky Moholi I’m getting seriously concerned about the almost dried-up pool of possible candidates for nominally heading our state-owned and state-dominated enterprises.

It’s hard enough to identify people with approximately relevant technical expertise, but technocratic types don’t automatically come with appropriate managerial and business experience, nor with leadership characteristics – let alone approved pigmentation and party approval.

The killer criterion, however, is the rare aberration of being able to live a double life – the sort of quality that enables successful spies to remain undiscovered. On the one hand our ideal state-owned enterprise (SOE) leader must inspire staff by persuading them that he or she is truly leading the band, while on the other hand the poor sap tries not to let on that all the meaningful shots are called by the dead hands of commercially naive, economically ignorant, and managerially illiterate politicians.

What man or woman of substance can stomach such an exasperating situation?

Whoever might hope for an opportunity to do a great job and build a fine reputation by effectively chairing SAA, or hauling Telkom out of the dwang when they know full well that every sensible commercial policy and decision would be vetoed or emasculated by some control-freaked party sycophant? Perhaps only those cynics looking to swallow their pride for a year or two so as to boost their CVs?

I fear that the pool is already nearly dry, but the blind government is unconcerned because the colossal and ever-rising cost of damage and failure will simply be charged to the citizens – at least until the taxpaying worms eventually turn.

Does all this sound defeatist? Not at all: It’s a bugle call to privatise all our SOEs. There’s no other solution. Do we have courageous political leaders who know this and will dare to drive it?

Tim Anderson

Newlands, Cape Town

Contact needed

The article by Keith Bryer is one of the best commentaries that have been made regarding the subject. Having worked in the industry of 33 years in refining and as an executive before retiring in 2002, I can see a looming problem on the five-year horizon worse than the Eskom debacle.

I would appreciate if you would give me a contact for Keith as I think we could put together an interesting set of articles to better inform the public. I have tried calling his company Kranz Bryer & Associates but the line has been discontinued.

Paul Buley

083 354 2871