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UPDATE 1-Eskom signs revised Mozal tariff deal with BHP

Sun, 30th May 2010 13:20


JOHANNESBURG, May 30 (Reuters) - South African power utility Eskom said on
Sunday it had signed an amended tariff deal with BHP Billiton for its Mozambican smelter to remove a link to commodity pricing that hit Eskom's balance sheet last year.

Contracts to supply electricity to the mining firm's Mozal smelter in Mozambique and its Hillside and Bayside smelters in South Africa accounted for nearly all of Eskom's embedded derivative liabilities that led to a book value loss of 9.7 billion rand ($1.28 billion) in the year to end of March 2009.

'The agreement, effective 31 March 2010, removes the impact of embedded derivatives on Eskom's balance sheet, as well as all onerous conditions,' Eskom's Acting Chairman Mpho Makwana said in a joint statement on Sunday.

The new agreement needs to be approved by the country's energy regulator.

Discussions with BHP on the South African smelter contracts are still ongoing and Eskom expects to conclude them in the course of the current financial year.

Similar talks with Anglo American will be finalised before the end of this year, Eskom said earlier this month.

The contracts have been a thorn in the flesh for cash-strapped Eskom, already struggling to find the 461 billion rand it needs to build new power stations in Africa's biggest economy to supply fast rising demand.

South Africa faced serious blackouts in early 2008 after the national grid nearly collapsed, forcing mines and smelters to shut for days and costing the economy billions of dollars.

'BHP Billiton remains acutely conscious of the electricity supply challenges facing South Africa and the region and has been exploring innovative and sustainable solutions to these challenges,' BHP Chairman Xolani Mkhwanazi said in Sunday's statement, but did not give any details.

Eskom was granted an annual increase in power tariffs of around 25 percent for the next three years starting in 2010 in an effort to make power prices in the country more competitive to attract foreign investment in the sector..

South Africa's electricity is among the cheapest in the world, partly due to a government policy of underpricing power to attract industry.

(Reporting by Agnieszka Flak; Editing by Hans Peters)

($1=7.569 Rand) (For more Africa cover visit: http://af.reuters.com -- To comment on this story email: SouthAfrica.Newsroom@reuters.com) Keywords: ESKOM BHP/

(agnieszka.flak@reuters.com; +27 11 775 3154; Reuters Messaging: agnieszka.flak.reuters.com@reuters.net)

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