Eskom’s R92-billion gift to South Africa’s biggest electricity user

Calculations by Meridian Economics have revealed that Eskom’s 50% discount awarded to South32’s Hillside aluminium smelter will cost the power utility R92 billion in forgone revenue over the contract’s duration.

Speaking to 702, Michael Marchant, Open Secrets’ Head of Investigations, noted that the discount was awarded to help create manufacturing jobs and enable South Africa to be competitive in the sector.

Open Secrets had filed an access to information request for the documents surrounding the deal, which has been struck for around 10 years.

Marchant said Eskom and the National Energy Regulator of South Africa’s (Nersa’s) justification regarding the discount was that Hillside significantly benefits the South African economy and that running it without the discount would not be practical.

“Therefore, they came, kind of swiftly, to this conclusion that it makes sense to offer them this massive discount, which by calculations done by Meridian Economics would be around R92 billion in foregone revenue of 10 years,” he said.

However, he noted a significant conflict of interest surrounding the deal.

In response to questions from Open Secrets, Eskom said it had asked South32 for an analysis of its benefits to the South African economy, which the company commissioned and then submitted to Eskom.

“Now, this is quite clearly problematic and a massive conflict of interest because they’re asking for data on benefits to the economy from the entity that’s asking for the discount,” said Marchant.

“Asking the company itself to measure its own contribution for a public process like this, I think, is very problematic.”

He pointed out that Nersa, the authority regulating electricity pricing, should have been the entity to undertake its own analysis.

“Unfortunately, while we have now got access to the full agreement, including the pricing agreement and Nersa’s decision-making documents, they have redacted large amounts of the information,” said Marchant.

The Hillside aluminium plant in Richards Bay is a major contributor to the country’s economy and a major employer.

South Africa’s biggest single electricity user

South32’s Hillside aluminium plant is South Africa’s single biggest electricity consumer, accounting for roughly 5% of Eskom’s total annual energy sales.

It is the country’s only aluminium smelter and the largest in the southern hemisphere. In its 2024 financial year, it produced 720 kilotonnes of aluminium.

It consumes around 10.3 terawatt-hours (TWh) of electricity each year, and its peak draw of 1,205MW is more than the capacity cut from the grid during one stage of load-shedding.

Aluminium is a lightweight metal valued for its softness and malleability. It is also robust against light or atmospheric corrosion.

It is widely used, from cans and kitchen utensils to aeroplane equipment and beer kegs.

It is also popularly used in high-end tech, including small-form and light laptops, and it is increasingly being used in power lines and cables as an alternative to copper.

According to Mining Weekly, Hillside’s value-lowering “high-carbon” status is already under scrutiny, and it would be highly advantageous if optimum public-private attention were given to greening the facility.

The status stems from its use of coal-fired electricity. The Hillside facility is responsible for 94% of South32’s total Scope 2 emissions.

Scope 2 emissions refer to indirect greenhouse gas emissions resulting from a company’s consumption of purchased electricity, steam, heating, and cooling.

South32 has engaged with the South African government regarding operational and value chain decarbonisation, which South32 COO Noel Pillay said has been mostly positive.

In past interviews, he said that technical studies have indicated that Hillside could be made to work with solar, wind, and battery backup investment.