BHP Billiton firmly believed the negotiated pricing agreements (NPAs) for electricity supply from Eskom to its Richards Bay and Mozal aluminium smelters were “legally binding”, it said yesterday.
BHP Billiton was commenting on Friday’s Supreme Court of Appeal (SCA) ruling that the contractual arrangements with Eskom, relating to its aluminium smelter operations, had to be made public.
While it stressed that it would accept the court ruling and would not be appealing, the mining giant said it was disappointed and feared the ruling would have a negative impact on the competitiveness and sustainability of its aluminium business in South Africa.
“While the agreements will now be in the public domain, we remain firm in our belief that the NPAs are legally binding,” BHP Billiton said.
It also noted that Eskom had confirmed in court papers that BHP Billiton’s aluminium business had always paid more for electricity than the cost of generation, and for many years had paid well above the market rate for power.
“We think it is important for the public to recognise that the construction or refurbishment of the Bayside and Hillside smelters (in Richards Bay) at a cost of more than R60 billion followed strategic decisions by successive South African governments between 1970 and 2003 to encourage large-scale industrial projects by making surplus electricity available at internationally competitive rates.”
The company’s smelters are estimated to consume around 5.7 percent of Eskom’s electricity capacity.
The NPAs were the subject of a Promotion of Access to Information application by Media24 to Eskom, which was initiated in 2009. Eskom refused to provide the information, although the SCA ruling noted that Eskom stated there was no express provision in either of the smelter supply contracts “that imposes a duty of confidentiality in relation to the provisions of the contracts”.
Eskom relied on a “general practice of not disclosing such information and then makes reference to a confidentiality agreement signed between Eskom, Hillside and BHP Billiton”.
The Promotion of Access to Information Act was the subject of a number of court challenges. Last week the SCA dismissed BHP Billiton’s appeal of an earlier high court ruling requiring Eskom to provide the information.
BHP Billiton’s appeal to the SCA was based on Media24’s delay in submitting the second request for information once the first request was denied.
In yesterday’s statement BHP Billiton said the contracts, which date back to the 1990s, were entered into on the basis that Eskom’s excess capacity would not be absorbed through normal economic growth for many years, even decades, and that the national utility would continue to ensure that there would be sufficient electricity to meet the country’s needs.
“The NPAs were therefore negotiated on a risk sharing basis related to the international price of aluminium and the rand/dollar exchange rate. The true price paid will only be able to be calculated over the full life of the contracts.”
Eskom, which must now make the information available to Media24, did not respond to approaches from Business Report yesterday.