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Cape Town - Long-term special agreements to supply cheap electricity to some of mining giant BHP Billiton's [JSE:BIL] operations have cost Eskom about R6.5bn, MPs heard on Tuesday.
Briefing members of Parliament's energy and public enterprises portfolio committees, the utility's chief financial officer, Paul O'Flaherty, said Eskom was committed to renegotiating the controversial contracts by the end of the current financial year.
"We have two remaining special parting agreements. One is with Aluminium South Africa, and one is with Skorpion Zinc (mine), and we sell electricity based on a commodity price, and not electricity based on... our traditional price to other users.
"What is the value of that? The difference in cash flows of what opportunity we're losing out as we sit today is around R6.5bn over the periods of the contract."
However, Eskom intended to renegotiate these contracts "by the end of this financial year".
Negotiations had been ongoing with both parties for the past year, "and we intend making sure that we eliminate the embedded derivatives on those particular contracts", O'Flaherty said.
He also repeated that Eskom needed 25%-a-year tariff increases over the next four years to meet its costs.
"Our funding plan assumes we first had three years of 25% (tariff increases) starting in the calendar year 2010... That's been given to us by the regulator.
"In order to be cost reflective, we need further 25% increases for another two years post that period, through to calendar year 2014.
"After that we will be at cost-reflective tariff from an Eskom perspective, and increases we will get thereafter should be inflationary," O'Flaherty said.
Briefing members of Parliament's energy and public enterprises portfolio committees, the utility's chief financial officer, Paul O'Flaherty, said Eskom was committed to renegotiating the controversial contracts by the end of the current financial year.
"We have two remaining special parting agreements. One is with Aluminium South Africa, and one is with Skorpion Zinc (mine), and we sell electricity based on a commodity price, and not electricity based on... our traditional price to other users.
"What is the value of that? The difference in cash flows of what opportunity we're losing out as we sit today is around R6.5bn over the periods of the contract."
However, Eskom intended to renegotiate these contracts "by the end of this financial year".
Negotiations had been ongoing with both parties for the past year, "and we intend making sure that we eliminate the embedded derivatives on those particular contracts", O'Flaherty said.
He also repeated that Eskom needed 25%-a-year tariff increases over the next four years to meet its costs.
"Our funding plan assumes we first had three years of 25% (tariff increases) starting in the calendar year 2010... That's been given to us by the regulator.
"In order to be cost reflective, we need further 25% increases for another two years post that period, through to calendar year 2014.
"After that we will be at cost-reflective tariff from an Eskom perspective, and increases we will get thereafter should be inflationary," O'Flaherty said.
