Eskom may Delay Alcan Smelter until 2013
Earthlife Africa Jhb
17th of January 2008
According to an article in today’s Business Report (“Shelve new projects, Eskom warns”), Eskom financial director is asking the Government to stop marketing South Africa as a low-cost electricity investment centre. This would include delaying, until 2013, the controversial and proposed Alcan aluminium smelter at Coega. The Alcan was the subject of intense civil society, local Port Elizabeth, and international opposition in 2007.
Eskom’s financial director, Mr. Bongani Nqwababa, is reported to have said, in regards to the Alcan smelter, that, "Eskom needs to review supply to Coega", and that paying penalties for the delaying the project would be cheaper than building a new power station, which is what the proposed smelter would require.
Earthlife Africa Jhb welcomes this reasoned and enlightened viewpoint and hopes that this is the beginning of responsible energy supply planning, especially in the current climate of load shedding. Responsible energy planning requires demand management and industrial energy efficiency.
Next Wednesday, Cabinet meets to discuss energy supply problems. Earthlife Africa Jhb urges Cabinet to reject the tariff policy (the Developmental Electricity Pricing Programme (DEPP)) under which the 25-year contract with Alcan was signed. Abandoning the DEPP would help to ensure security of electricity supply for South Africa’s ordinary citizens.
As explained below, the DEPP ensures that contracts between the State and foreign corporations remain secret and not for public review. This is extremely anti-democratic.
The Energy Policy Officer of Earthlife Africa Jhb, Tristen Taylor, states, “The big question that should be asked when Eskom turns off the lights is; why, if Eskom can't supply electricity to the citizens of this country, is it offering foreign companies large amounts of power at reduced tariffs? Must individuals and small businesses suffer so that large industries can be assured profit? It seems that Mr. Nqwababa understands these questions and has suggested it would be irresponsible to supply the Canadian multinational corporation Alcan before supplying electricity to the citizens and voters of this country.”
Alcan & Electricity Supply Background
Via the Developmental Electricity Pricing Programme, Eskom and the Government have committed themselves to large-scale supply of electricity to foreign companies at reduced tariffs; this at a time when Eskom struggles to supply citizens with electricity. Thirty percent of all South Africans are still not connected to the electricity grid.
The electricity supply deal to the Canadian aluminium-smelting firm Alcan was the first and to date the only deal to be signed under the DEPP.
For the past two years, Earthlife Africa Jhb has consistently called upon the Department of Trade and Industry (DTI), the Department of Public Enterprises, Eskom and Alcan to disclose the details of electricity sales to Alcan for its proposed smelter. Both the South African Government and Alcan have hidden behind a profoundly anti-democratic clause in the Developmental Electricity Pricing Programme (DEPP). Alcan is the first foreign company to benefit from the DEPP, and has signed a 25-year deal for 1350MW supply of electricity. This represents about 4% of the entire country's usage.
What is the DEPP? Essentially, the DEPP provides for uniquely discounted electricity tariffs for foreign industries that are heavy consumers of electricity (over 50MW) in South Africa. In return for investment in South Africa, the DEPP will ensure that electricity tariffs are internationally competitive (our nearest competitor is Australia, which sells electricity at US$0.053 per kWh and is 30% more expensive) and that the industry in question can achieve an profitable internal rate of return; i.e. if electricity is a major overhead (such as in aluminium smelting), it the tariff will be low enough to ensure profit.
This is a significant incentive for heavy industry to invest in South Africa and is supposed to provide significant jobs. However, what it really does is commit Eskom to tariffs for heavy industry at a rate lower (or, at most, on par with the next cheapest supplier of electricity) than anywhere else. It is, in effective, a subsidy for foreign industries, similar to a tax break or import duty waiver.
The most worrying factor about the DEPP is the "built-in" secrecy clause. Eskom is a public enterprise, ultimately owned by the citizenry at large. However, the DEPP guidelines ensure that any contracts signed under the DEPP are to remain secret. This is profoundly anti-democratic. The DEPP states (clause 12.1):
All officials, employees or members of the Department, the adjudication committee, NERSA, Eskom and non Eskom distributors shall regard as confidential all technical information, records, particularly any strategic commercial information and all knowledge that pertains to any project that applied for benefits in terms of DEPP, whether such information is recorded on paper or in an electronic manner.
The very next clause (12.2) in the guidelines bounds individuals with knowledge about the contracts to silence for the rest of their lives.
If the DEPP is a method for promoting growth and development in South Africa, why then the secrecy? Why shouldn't this be in the public domain? This clause gives foreign corporations like Alcan the right to build electricity-intensive industrial plant in South Africa, get electricity on favourable terms in relation to their expected rate of return, and not to have to tell the country at large what rate they purchased electricity from the South African state. Further, this clause seems at odds with the spirit of the Promotion of Access to Information Act, through a pre-emptive strike against the releasing of information.
The DEPP deal with Alcan means that the citizens of this country won't know the answers to the following questions:
* What is the price of electricity agreed upon by Alcan and Eskom?
* What are the conditions of supply of electricity?
* Will the price paid to Eskom cover the indirect costs of smelter? For example, the environmental group TWIG has calculated that the indirect costs of harm to the environment based on Eskom CO2 emissions to supply the smelter with electricity would be R6.4 billion.