‘BHP contracts main factor behind record loss’
JOHANNESBURG: BHP Billiton’s multi-decade aluminium smelter contracts with Eskom, the main factor behind the utility’s record annual loss, are globally competitive, BHP said.
Eskom reported a loss of R9.7 billion on Thursday, mainly attributable to fair value losses from derivative contracts linked to the price of aluminium. The utility said it would review the contracts to limit its exposure to the fluctuations in the aluminium price which more than halved during the company’s financial year to end-March.
“The price BHP Billiton pays for power to the smelters is internationally competitive ... in valuing such contracts it is important to consider the entire length of the agreement because looking at one year in isolation can be misleading,” BHP spokeswoman Bronwyn Wilkinson said.
She said during times of high aluminium prices BHP paid “significantly higher” tariffs to Eskom, and a lower price than the standard tariff when the price of the metal dropped.
Eskom CE Jacob Maroga said some of these commodityprice linked contracts had 20 more years to run. In the 1970s, Eskom had power to spare and sought deals with companies such as BHP to pay for electricity based on tariffs linked to the price of metals.
Wilkinson said BHP had based its decision to invest $6 billion (R46bn) to build its aluminium smelters in South Africa because of the availability of these long-term power supply contracts. – Reuters