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In South Africa, the poor pay the electricity bill of the world’s largest mining company

EJOLT collaborator Professor Patrick Bond recently published an article linking secret deals for almost free electricty for a mining giant with the explosion of electricity costs for ordinary users and community unrest all over the country as people are taken off the grid. Add the fact that profits are channeled to the headquarters in Australia and you have colonialism, 21st century style. Here’s his article as published in City Press, South Africa.

By Patrick Bond

The Marikana massacre has unveiled a mining-policing conspiracy against striking miners that links Lonmin shareholder Cyril Ramaphosa to Police Minister Nathi Mthetwa via incriminating emails.

But this incident pales in comparison to the decades of damage done by malevolent power relations between BHP Billiton (ed. note: the world’s biggest mining company) and Pretoria officials, relations that now seem to be shifting because of Eskom’s desperation.

When the parastatal’s chief executive Brian Dames appealed to the National Energy Regulator of South Africa (Nersa) last week to review 20-year-old special pricing agreements, what he unveiled is more deadly than Marikana: his predecessors’ dogmatic support for what might be the world’s greatest-ever power rip-off.

That rip-off this year results in a R5 billion (ed. note: or 443 million Euro) cross-subsidy for BHP Billiton from the rest of us: the firm pays just R0.09 per kilowatt hour (reputed to be the world’s cheapest), as opposed to more than R1 per kilowatt for the rest of us. This divergence began two decades ago when Mick Davis – then Eskom’s treasurer, who is now the chief executive of the Xstrata mining house – found that South African economists’ incompetent economic forecasting had resulted in electricity over-capacity of about one third. He offered large chunks of it to Gencor for the Alusaf aluminium smelters at Richard’s Bay at a cut-rate price.

Gencor became Billiton when the then National Party’s finance minister Derek Keys controversially allowed the firm to externalise assets in 1993 to buy Shell Oil’s minerals division, which was soon merged with Melbourne-based Broken Hill Properties to become the world’s largest mining and metals company.

By the mid-1990s, both Keys and Davis had become top Billiton executives and, after finishing his term as the first Nersa director, Xolani Mkhwanazi also moved to a top position in BHP Billiton, and he now serves as president of the SA Chamber of Mines.

The secret 40-year sweetheart deals made by Davis and Keys, and approved by Mkhwanazi, were finally leaked by a Democratic Alliance MP in March 2010, at the same time that the World Bank was considering lending $3.75 billion (R33 billion at current exchange rate) – its biggest-ever project credit – to Eskom to finance the Medupi coal-fired power plant.

That deal was done in April 2010, even though Eskom had hired Hitachi to build boilers worth tens of billions of rands thanks to what the Public Protector termed “improper conduct” by then Eskom non-executive chair Valli Moosa.

The boilers are being delivered way behind schedule but, more controversially, they will enrich the ANC’s Chancellor House financing arm, which has a 25% share in the local Hitachi subsidiary. At the time the deal was struck, Moosa served on the ANC’s fund-raising committee.

Although ANC treasurer Matthews Phosa promised to sell the shares, that apparently hasn’t happened.

The glare of negative publicity was such that in October 2010, Deutsche Bank mining analysts predicted BHP Billiton would sell its Richard’s Bay assets. According to a Business Day analyst, “the reason for selling the aluminium smelters would be the scrutiny under which BHP’s electricity contracts have come amid demands for resource companies to use less power”.

Indeed, although BHP Billiton has barely reinvested here over the last decade, the loyalty linkages between elites in Pretoria, at Eskom and the London/Melbourne mining houses have held, until now.

The damage has been enormous. An electricity price increase of 128% has been suffered by ordinary South Africans since 2008, while BHP Billiton has welcomed its own lower electricity costs as the aluminium price fell. Its profits have been huge, and instead of circulating the money locally – as was done in Gencor’s day – 
it is paid offshore to Melbourne, contributing to South Africa’s extreme current-account deficit.

In turn, this arrangement will keep generating intense community protest when municipalities disconnect household power to those who cannot afford the increases. This when in fact it is the Eskom price hikes, courtesy of the BHP Billiton cross-subsidy and the Medupi power plant construction – whose benefits mainly go to the mining industry – that catalyse many service-delivery protests.

Too many protesters don’t look beyond their municipal councillor to blame the national government, Eskom and the crony relationships that exist between the ruling party and multinational corporations.

This lack of rudimentary connect-the-dots politics helps explain why there is not yet a serious challenge to power in South Africa in spite of what are among the world’s highest community protest rates over the last few years.

This travesty has gone on for too long. Asked why cross-subsidisation of electricity prices to benefit the poor was not being considered in the mid-90s, the state’s leading infrastructure-services official – Chippy Olver, who was later Moosa’s director-general – explained to the Mail & Guardian: “If we increase the price of electricity to users like Alusaf (BHP Billiton), their products will become uncompetitive and that will affect our balance of payments.”

Pro-globalisation, pro-corporate ideology has done enormous damage ever since, and continues because the same people continue to dominate in Pretoria, in corporations and even in multilateral institutions.

Last month, for example, Olver served as Moosa’s lead official for UN promotion of carbon trading in the Third World, recommending yet more reliance on corporations to solve the world’s great problems.

Like Ramaphosa calling for what became a massacre of mine workers at Marikana, the damage done is vast and incalculable, and it is long overdue for a correction.

One comment

  1. On Andre Arendse said:

    Can’t believe this stuff really happens – government is clearly not concerned about ordinary tax payers.