Do the right thing

Finweek English Edition - - INSIGHT -

BHP Bil­li­ton’s 2012 an­nual report boasts that over the last 10 years it has re­turned ap­prox­i­mately $54bn to share­hold­ers through div­i­dends and share buy-backs. Lit­tle did South African con­sumers know that they’ve been sub­si­dis­ing those share­holder pay­outs.

Just a day af­ter Eskom urged South Africans to curb their elec­tric­ity us­age by 10% to avoid black­outs, Beeld re­ported that SA house­holds were paying more than six times the amount paid for power by BHP Bil­li­ton, which con­sumes roughly 9% of the na­tion’s elec­tric­ity sup­ply.

BHP Bil­li­ton pays Eskom just 22.65 cents per kilo­watt hour (kWh) for the elec­tric­ity that runs its two loss-mak­ing smelters in Richards Bay and Ma­puto, ac­cord­ing to the report, which fol­lowed a court or­der rat­i­fied by the Supreme Court of Ap­peal in which the min­ing gi­ant was forced to dis­close the terms of a deal struck with Government as far back as 1992. By con­trast South African house­holds are charged R1.40/ kWh for elec­tric­ity that Eskom pro­duces at a cost of 41 cents/kWh.

The most galling thing about this rev­e­la­tion, which BHP Bil­li­ton’s lawyers tried to block, is that the sub­sidi­s­a­tion of th­ese two loss-mak­ing smelters by SA house­holds has largely ben­e­fited share­hold­ers in Bri­tain and Aus­tralia.

The min­ing gi­ant’s an­nual report shows that 86.75% of the share­hold­ers of BHP Bil­li­ton Plc, the UK reg­is­tered com­pany with list­ings in Lon­don, New York and Jo­han­nes­burg, are Bri­tish, with just 6.49% hail­ing from SA and 1.45% from Aus­tralia. Aus­tralian domi­ciled BHP Bil­li­ton Ltd is 96.14% Aussie-owned with a fur­ther 2.38% of share­hold­ers from New Zealand. In­stead of be­ing forced to ab­sorb the costs of its loss-mak­ing South­ern African smelters, th­ese share­hold­ers have ben­e­fited from t wo decades of sub­si­dies milked from the South African pub­lic.

The rev­e­la­tion comes at a time when SA house­holds have paid av­er­age an­nual power tar­iff in­creases of 24.5% since 2009/2010 and are faced with fur­ther in­creases of 8% per an­num for each of the next f ive years (and that only af­ter the Na­tional En­ergy Reg­u­la­tor re­jected Eskom’s ini­tial re­quest for in­creases of 16%).

Of course, it must be re­mem­bered that the deal be­tween Eskom and BHP Bil­li­ton was struck t wo years be­fore the ad­vent of democ­racy in SA, a time when the coun­try was ac­tu­ally moth­balling power sta­tions due to an over-sup­ply of gen­er­at­ing ca­pac­ity. So while the rev­e­la­tion that Eskom has been sup­ply­ing BHP Bil­li­ton with power at prices be­low its cur­rent mar­ket value is galling, what the ar­chi­tects of the deal are mostly guilty of is not fore­see­ing the ef­fect that democ­racy would have on SA’s econ­omy.

Nev­er­the­less, cir­cum­stances have changed. On the face of it one would as­sume that BHP Bil­li­ton would be quite within its rights to de­mand that Eskom

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