Press Release: Eskom Begins to Crack over Alcan’s Secret Deal

Press Release: Eskom Begins to Crack over Alcan’s Secret Deal
Earthlife Africa Jhb
16th of May 2007

After weeks of legal pressure and citizens’ protests, Eskom has partially relented and disclosed more details about its deal with Alcan over the long-term selling of electricity. While Eskom’s disclosure is not sufficient for an adequate accounting of the deal with Alcan (and the undisclosed subsidies of that deal), it represents a step in the right direction.

In its response to an internal PAIA appeal from Earthlife Africa Jhb, Eskom noted the following:

1) Alcan will not have the right to sell on electricity
2) Alcan will be subject to a “take-or-pay” arrangement
3) There will be no linkages between the aluminium price and the price that Alcan will pay for electricity.

On the matter of price, Eskom is still refusing to disclose the actual price (cents per kilowatt hour), citing that it would violate confidentiality agreements with Alcan. It seems that Eskom would rather talk to a Canadian multinational corporation than with the South African people.

What Eskom has stated, in regards to the price of electricity, is that the price will be no lower than the cost of supply (as far as possible, according to Eskom), not be subsidised by other users, and linked to Eskom’s Forward Pricing Curve. All of this information is not exactly helpful.

Eskom’s costs of supply (and “at the gate cost”) and forward pricing curve are something of a mystery. While interesting to note that the price of electricity is linked to the forward pricing curve, that it essentially meaningless without detailed knowledge of the forward pricing curve. Likewise, what is Eskom’s current cost of supply, and what is meant by the notion that Eskom will not charge below the cost of supply as far as possible?

According to a confidential document from Eskom (Confidential Briefing Note: New Build Programme: Revised Capital Expenditure for the Period 2007/8 to 2011/12), a new coal-fired power station will have at supply cost of 25c/kwh. Is this future cost the basis of cost of supply or would it be from the much cheaper current cost of supply?

Further, the issue of subsidisation is also unclear, given the massive R150 billion capitalisation period over the next five years. In order to finance this, R100 billion will be raised through debt. Eskom will have to borrow heavily, and the question is, will Alcan, as one of the largest, single users of electricity in the country, pay towards that debt? That question can only be answered by the disclosure of the actual price.

Already the Coega IDZ has had a variety of subsidies thrown at it, to the tune of R7.5 billion. In addition, Eskom is spending R6 billion on transmission lines to Coega (to service Alcan’s smelter). Will Alcan pay a part of those costs, especially cost of the transmission lines? It is highly doubtful that Alcan will pay back Eskom (via a high cost of electricity) for the transmission lines; somebody else may have to that, namely consumers and taxpayers. Effectively, this is a handout to the very wealthy.

The issue of subsidisation runs even deeper when the externalised costs of electricity are taken into account. Coal-fired power stations produce local and global pollution. The SOx and NOx emissions from these stations cause damage to people’s health, agriculture and nature. Dealing with these negative effects (acid rain and respiratory problems), costs money in health care costs and losses to business. Globally, the CO2 emissions from coal-fired power stations are a major contributor to global warming, which is set to cause extreme drought, famine and migration throughout sub-Saharan Africa. These externalised costs of coal-fired power stations have been estimated to be at least twice the current cost of electricity. Will Alcan be contributing towards these externalised costs or will it be the South African taxpayer? That can only be determined through the disclosure of the actual price.

Earthlife Africa Jhb calls upon Eskom and Alcan to fully disclose all the details of their deal, including the actual price of electricity. Confidentiality clauses can easily be dealt with if both parties decide to reveal the information and become the kind of honest and accountable public institutions and private investors that our country requires.