MPs tell Eskom to halt cheap rates

Johannesburg - Parliamentarians have turned the pressure on Eskom to scrap favourable electricity supply contracts with some industrial clients, Primedia's Eyewitness News reported on Wednesday.

While Eskom told MPS on Tuesday it was still in confidential talks with the companies in an attempt to renegotiate several contracts that guaranteed the firms were sold electricity at very low tariffs, Parliament is keen to get the issue sorted out.

In its eagerness to lure multinational companies to South Africa's shores, government (including state companies like Eskom) offered incentives that were difficult to resist.

The contracts were structured to benefit both parties by offering power companies the certainty of demand and thus underpinning their investment in power stations while offering industrial customers a guarantee of long-term and secure supply.

The extent of Eskom's industrial contracts still needs to be disclosed but it is believed that the utility's commodity-price linked contracts were behind mining giant BHP Billiton's selection of Richards Bay as a location for its Hillside and Bayside aluminium smelters.

A commodity-price linked contract would therefore mean that if the aluminium prices went up Eskom would get paid more and vice versa.

Eskom did warn when it released its results last year that the electricity discount afforded aluminium producers was unsustainable.

According to the new report, Eskom said some of the contracts were signed more than a decade ago and added that they involved fewer than ten of its 138 biggest industry clients.

Members of Parliament, however, said they wanted progress on the talks regarding the long-term contracts.

Public Enterprises Portfolio Committee chairperson Vytjie Mentor made parliament's position on the matter clear:

"It's highly desirable for them [Eskom] to exit out of those contracts. They will come back to us and tell us whether they managed to do that, or what prevented them from doing that," said Mentor.

Eskom's Brian Dames said they were being put in a tight spot.

"I think it is very important as a company that we honour our contractual arrangements. As any country we should do that and as a company we should do that," said Dames.

Eskom has been given a month to report back to Parliament on the negotiations.

- I-Net Bridge