What BHP Billiton pays Eskom for electricity: Chris Yelland - EE Publishers
HILTON TARRANT: Ten days ago the Supreme Court of Appeal ordered Eskom to disclose for the first time how the price of electricity sold to BHP Billiton’s aluminium smelters in the country is calculated. Chris Yelland, MD of EE Publishers joins us now.
Chris, you’ve done exhaustive analysis of the pricing agreements and what BHP Billiton is paying Eskom for electricity. That story is up on Moneyweb.co.za. You’ve looked essentially at three agreements – one involving two Potlines at Hillside smelter, then the third Potline, which was an extension to that smelter. And then a third contract for Mozal. What is Eskom being paid by BHP Billiton for electricity on average for these aluminium smelters?
CHRIS YELLAND: Hilton, as you rightly say, there are three separate contracts, three completely different mechanisms by which Eskom determines the price per month. My article looks at each of the three mechanisms, works out the average price per kilowatt hour (kWh) for each of these three contracts and then looks at the overall figure to work out the average that BHP Billiton is paying for its electricity per kWh.
But, short and tall, you asked the question what is the average price they are paying and my calculation is that they pay 27.15c per kWh on average across all those three installations.
Now, the cheapest one of course is the Hillside Potline 1&2. It comes in at about 21c/kWh. Then we have the extension, the Hillside Potline 3, which comes in at 27.5c/kWh. And finally the Mozal installation comes out at 33c/kWh. I say, the average, based on the weighted average, based on how much energy each uses, works out to 27.15c/kWh.
HILTON TARRANT: How does this compare, Chris, to what it actually costs Eskom to produce electricity?
CHRIS YELLAND: Well, the average cost of supply of Eskom is about 41c/kWh. That is the average cost of production. That is, if you were to take all Eskom’s costs that they declare in their income statement for the year, of running the whole business of Eskom, and you divide it by the total amount of kilowatt hours that they deliver, you work out the rands per kilowatt hours, the cost, that comes to about 41c/kWh. But do remember it is not the cost of generation. There’s a whole value chain from coal to generating electricity to transmitting it, and finally to distributing it to the final point of use. The figure that I've given you of 41c/kWh is across the whole value chain, the average cost of supply, the cost per kilowatt hours that they produce.
HILTON TARRANT: A consumer in Johannesburg will pay round about R1.60/kWh. That just puts what BHP Billiton is paying Eskom in perspective.
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