DA reveals secret Eskom dossier

The Democratic Alliance (DA) can this morning reveal a secret 291 page Eskom dossier (see here - PDF), which provides definitive proof, amongst other things, that Eskom has been charging vastly discounted electricity tariff rates to companies that provide little or no benefit to the South African economy. The document was leaked from high level officials in Eskom to the DA and we made use of its information yesterday to question the acting CEO in the portfolio committee on public enterprises. The chairperson of the portfolio committee tried to tell us not to use the report, but we are today releasing it in full, because we believe its contents are of manifest importance to the South African public. This report stands alongside the now notorious Olsen Report - also released publicly by the DA - in that it provides cast iron evidence of the extent of mismanagement at Eskom, the ANC government's complicity in it, and the damage that is being done to the South African economy as a consequence.

The DA will be sending a copy of the report to the chairperson of the Public Enterprises portfolio committee, with a request that Eskom be called before the committee to explain the report and the facts contained within it. Increasingly the South African public is being left with the impression that there are two sides to everything Eskom says and does: the public side, defined by the limited and sometimes misleading information it is willing to make public; and the secretive private side, in which deals are done contrary to public information, information is withheld and actual practice differs fundamentally from public undertakings. If this perception is to be arrested, Eskom needs to come clean; and the ANC government needs to play its part in that process. This document and everything it contains needs to be fully interrogated. The public, more than anyone, has a right to know.

The salient facts from the document are as follows:

• Motraco, a Mozambican electricity distribution company, has been paying 12c per kilowatt hour for electricity - which is far below cost. This contract was signed in 1997. This contract was signed at a time when we were seeing the first signs that the power network was under pressure.

• BHP Billiton's total payment of electricity halved in 2009/10 from what they paid in 2008/09 - which means that, conceivably, the electricity price charged to BHP declined as the rest of South Africa had to pay more.

• Despite the fact that Motraco is merely a distribution agent to the actual electricity users, its debt to Eskom has increased to R 100 million as at June 2009 - bad debt for which Eskom did not make provision.

• Motraco is the fifth largest electricity user in South Africa, taking 3.7% of all electricity generated in the country, and Motraco supplies 95% of its electricity to Mozal Aluminum Smelter in Mozambique. Mozal in turn is a subsidiary of BHP Billiton. The second largest buyer of electricity is BHP Billiton for their Hillside and Bayside smelters in Richards Bay, which consume 5.6% of the total electricity in South Africa. In other words, BHP Billiton, directly and through its subsidiaries, takes up 9.3% of all electricity generated by Eskom - making it the single biggest user of electricity in South Africa.

• However, BHP Billiton only contributes an estimated 0.1% of Gross Economic Product (GDP). This is because the imported aluminum smelted at the Mozal, Hillside and Bayside smelters is exported directly after it has been processed. In other words, there is no down-stream beneficiation, and yet they get below-cost electricity without making any significant economic contribution.

• Eskom gave a guarantee of R 224 million to Motraco - which means that Eskom has, in effect, put aside this huge amount of money, to a company that already owes it money and gets preferential prices.

• Short to medium term purchasing contracts for coal cost an average of R 270 per ton, whereas fixed price contracts cost only R 108 per ton - which means that Eskom has been paying almost three times too much to get its primary energy resource. This added to the R 8.3 billion shortfall in 2009/10. The big coal suppliers have told Parliament that they are more than willing to supply coal at the fixed price, but that Eskom has refused their offers and would rather make use of short term contracts.

• In total, bad debt at the utility added up to R 2.8 billion in 2009/10, and overall debt older than 15 days amounted to R 9.7 billion. Soweto has the single biggest outstanding bad debt at R 1.8 billion as at June 2009. This means that if Eskom had been better able to manage its debt, then there would be much more money available to the utility.

• The overall productivity change of all resources has declined by R 632 million (4.5%), while the price over recovery is at R 859 million (6.4%) - this means that although Eskom has made worse use of its resources, it has ostensibly at the same time charged more than necessary for its outputs.

• According to an executive overview, in June 2009, the office of the Chief Executive received a provision of R 41.3 million. Now we know why Maroga claimed R 85 million as severance package.

In addition to all of this, a parliamentary reply released this morning, in response to a DA parliamentary question, shows that the contract with Motraco commenced on December 1997 and will end on December 2025 - this is highly concerning, since it implies that Eskom will keep on charging preferential rates to Motraco for the next 15 years.

There is a lot for which Eskom now needs to explain. The DA believes that the publication of the secret document will ensure greater transparency at the utility. Eskom need to be called back to the committee, and they need to explain this disturbing state of affairs.

Statement issued by Pieter van Dalen, MP, Democratic Alliance deputy shadow minister of public enterprises, April 21 2010

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