Bloomberg reported that BHP Billiton Limited and Eskom Holdings Limited agreed to review power supply contracts to BHP’s aluminum smelters in southern Africa after losses incurred by Eskom threatened its ability to keep South Africa supplied with power.

The BHP operated smelters in South Africa and Mozambique can use as much as 2,150 MW of Eskom’s power, equivalent to more than 5% of the installed capacity of the utility which supplies almost all of South Africa’s electricity. Eskom, which is in the midst of ZAR 460 billion expansion, had ZAR 9.75 billion net loss for the year through March 31st 2009.

While the terms of the contracts are confidential, they are affected by the price of aluminum and currency exchange rates. Some of the contracts were concluded more than 10 years ago when South Africa had surplus power. Now, the nation is struggling to keep pace with demand, and a shortage in January 2008 led to the closure of most mines and smelters for 5 days.

Melbourne based BHP said that a new agreement may involve BHP Billiton assuming responsibility for the commodity pricing and currency exchange risks related to the contracts, which would in turn reduce the volatility of Eskom’s earnings and improve its balance sheet.

Mr Kannan Lakmeeharan MD of systems operation and planning of Eskom said that Eskom, based in Johannesburg, expects a new agreement to exclude links to commodity prices and exchange rates. Any agreement will be subject to the approval of South Africa’s power regulator.

(Sourced from Bloomberg)