Eskom, Alcan on verge of Coega deal

Johannesburg - Eskom and Canada's Alcan, the world's second-largest aluminium producer, could sign a power pact for the $2.7 billion (R21 billion) Coega aluminium smelter within the next three weeks.

Alcan spokesperson Alexander Christen said at the weekend: "We are hoping to reach an agreement with Eskom on the energy contract before the release of our third-quarter earnings on October 31. We are almost there."

Eskom spokesperson Fani Zulu said significant progress had been made with the power contract with Alcan. "The contract could be signed in October and the worse case is November. We are at the tail end of negotiations."

The power contract is likely to span 20 to 25 years. The smelter is expected to require about 1 300 megawatts of power a year.

Christen said once the power contract was in place, an engineering study needed to be completed and project finance arranged. Only after that, could Alcan decide if it wanted to invest in the Coega smelter.

"Signing the power contract would be a huge step forward in reaching the final decision on the smelter," Christen added. Electricity makes up about 30 percent of an aluminium smelter's costs.

Alcan is looking to take a stake of between 20 percent and 30 percent in Coega, while the government parastatal, the Industrial Development Corporation, is looking to take an interest of between 15 percent and 20 percent.

"The South African government is unlikely to be our only partner at Coega," Christen said. Partners to take up the remaining 50 percent or more in the smelter would be sought when the project financing was done, he added. Other partners in the project were unlikely to be other aluminium producers, he said.
There would be at least a third major shareholder in the smelter and a number of interested parties were looking at taking up a stake, said sources close to the deal.

The 1.44 million tons of alumina a year that would be supplied to the smelter was likely to come from Alcan's alumina refineries elsewhere in the world, but the source of the alumina had yet to be decided.

The department of trade and industry's deputy director-general of enterprise and industry development, Lionel October, said that Eskom and Alcan were likely to sign the contract "within days". October is a board member of the Coega Development Corporation.

When the 700 000 tons a year Coega smelter proceeds, it will be southern Africa's fourth smelter after the Hillside and Bayside smelters in Richards Bay, and the Mozal smelter in Maputo. The region's annual aluminium production will increase to 2 million tons a year.

At 700 000 tons, the smelter will be the third largest in the world. The only other bigger smelters are in Russia and have the capacity to produce between 920 000 and 980 000 tons a year. They are the Krasnoyarsk and Bratsk smelters, which are owned by Rusal, the world's third-largest aluminium producer.