Eskom signs deal to supply Congo

WILL SAVE FALTERING COPPER PRODUCTION Eskom’s feast-orfamine fortunes now have the struggling power producer committing itself to supplying the world’s biggest copper producers with enough power to turn around their production.

The Democratic Republic of Congo has signed a provisional agreement to import Eskom power that could boost copper production by 20%, the country’s chamber of mines says.

Congolese state-owned power company SNEL proposed importing 200 megawatts from South African utility Eskom Holdings at meetings in Johannesburg on April 20 and April 21, said Ben Munanga, chairperson of the energy commission at the chamber.

Eskom has 1 000 megawatts available for export for as long as ten years, but only 200 megawatts can be delivered to Congo because of grid constraints between the two countries, Munanga said. Still, that could boost Congo’s copper output by as much as 200 000 metric tons, Munanga estimated.

SNEL confirmed the utility signed a term sheet with Eskom outlining the main points for a 200-megawatt contract, with a view to concluding a renewable, five-year power-supply agreement soon.

“We still have a few years to go before we have new hydropower capacity on our network so if we have such an opportunity to buy we are going to take it,” SNEL spokesperson Medard Kitakani said yesterday, adding the offer from Eskom was unexpected.

Eskom said a deal may be signed next month.

“We are in discussions,” spokesperson Khulu Phasiwe said by phone. “If they go well, we will be signing the deal before the beginning of June.”

Eskom will sell the power to SNEL, which will add mark-up and transit fees, before redistributing to the miners. This could increase the unit cost to mining companies by as much as 27%, but it’s still preferable to the alternatives, Munanga said.

“If you compare the cost of imported power to the cost of diesel it’s a no-brainer,” he said.

Mining companies have installed diesel generators to top up power-supply for copper production, which can increase costs by as much as $1 000 per ton, according to the chamber of mines.

Kitakani said SNEL’s mark-up and transit fees would be negotiated with the miners and defended the utility’s right to make a margin on the power contracts.

Eskom is ready to export the power as soon as June 1, but the negotiation of amended power-purchase agreements between SNEL and the mining companies is expected to take longer, Munanga said. SNEL’s failure to deliver on previous power contracts has damaged trust between the utility and the miners, who will be reluctant to finance SNEL acquiring the electricity from Eskom without guarantees that onward delivery to each mining project will be respected.

“If SNEL was a healthy organisation that could import power itself and then redistribute it wouldn’t be as difficult,” said Munanga. “We think two months is the minimum.”

Negotiations will begin this week between SNEL and the mining companies, who must decide how much power they are each prepared to take. – Bloomberg