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Nersa seeks legal advice on Eskom/BHP Billiton contract

The National Energy Regulator of South Africa (Nersa) hopes to complete its investigation into the power supply agreement between Eskom and BHP Billiton for its two Richards Bay smelters by the end of next month, but first has to consult senior legal counsel.

According to a progress report from Nersa officials to its electricity sub-committee the final report is being drafted, but Nersa needs to get a legal opinion regarding constitutional issues that have been raised.

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Nersa received a request from Eskom in October 2012 to investigate its contract with BHP Billiton.

The contract had first been concluded in 1992 and later renewed and links the price at which BHP Billiton buys electricity to the international aluminium price.

This resulted in BHP Billiton buying electricity in recent years well below cost and public pressure mounted in the wake of rising electricity tariffs to cancel the contract.

BHP Billiton has argued that Eskom has benefitted significantly when the aluminium price was high and efforts by the power utility to renegotiate the terms of the contract were unsuccessful.

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Among other things Eskom asked the regulator to determine whether the agreement is justified, whether BHP Billiton is getting undue discount, whether the agreement is in compliance with Eskom’s licence conditions and whether the public concern about the contract is justified.

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