A confidential pricing agreement that Eskom has fought to keep secret until now reveals that the Hillside smelter, owned by the JSE-listed South32, received a sweetheart deal from the electricity utility potentially worth R92bn over 10 years.
This emerges from an analysis of the full unredacted “negotiated pricing agreement” (NPA) which Open Secrets has finally managed to obtain, despite the fact that Eskom initially rejected an access to information request submitted in March 2024.
The secretive pricing agreement was struck between South32 and Eskom in 2021 for the supply of electricity to the largest aluminium smelter in the southern hemisphere, South32’s Hillside smelter in Richards Bay. This transaction has major repercussions for Eskom’s fiscal stability, as Hillside consumes nearly 6% of Eskom’s electricity.
Yet Eskom refused to release the details, arguing that “disclosure … could disadvantage Eskom in other [pricing] negotiations with potential applicants, as insight to the redacted information … is likely to create an expectation of the same treatment”.
This refusal was remarkable, given that a 2013 Supreme Court of Appeal judgment had forced it to release the previous version of the agreement with South32’s forerunner, BHP Billiton, because of the “undoubtable … public interest in the information”.
When that first agreement was made public, it sparked widespread anger as it revealed that BHP was paying only 15% the tariff ordinary consumers were paying.
Yet, in a surprising move a few weeks back, Eskom sent the full unredacted NPA to Open Secrets without explanation. It turns out that Eskom’s decision followed behind-the-scenes wrangling between the information regulator and the utility, prompted by an Open Secrets complaint to the regulator regarding Eskom’s refusal.
The outcome suggests Eskom did not have any legitimate legal ground to refuse to disclose the NPA – and the information regulator, to its credit, appears to have come down on the side of public transparency.
New deal, massive discount
That agreement, now published on Open Secrets’ website, shows why Eskom was so eager to keep the detail of South32’s discount from the public. Meridian Economics has crunched the numbers for Open Secrets, comparing the pricing terms with the standard Megaflex tariff charged to large Eskom users without such an agreement.
Meridian conservatively estimates that the discount for the current financial year is as high as R10bn, with South32 having already benefited from about R25bn in lower electricity prices since the deal was struck. Over the full 10-year agreement, Meridian estimates the total discount will be about 50% – about R92bn in forgone Eskom revenue.
By way of comparison, in January 2025 electricity minister Kgosientsho Ramokgopa estimated the average annual electricity cost for low-income households is R14,400. This means the R10bn discount to South32 this year could totally subsidise the electricity costs of nearly 700,000 households. The average household in South Africa has 3.34 members, so this would support nearly 2.5-million South Africans.
It is also worth reflecting on how much this could contribute to South Africa’s energy transition. South32’s discount for this year – R10bn – is nearly three times the total grant funds disbursed to the Just Energy Transition Partnership over the past three years.
If anything, the R92bn estimate is conservative, because the discount could grow in the coming years if normal consumers continue to face above-inflation increases. This is because the agreement protects South32 by guaranteeing annual increases of producer price inflation (PPI) +1.25%. For comparison, PPI has hovered around 1% so far in 2025 while the National Energy Regulator of South Africa (Nersa) recently approved a 24.3% tariff hike over the next three years.
Importantly, the NPA does require Hillside to provide “interruptibility”, allowing Eskom to interrupt supply to balance the load on the grid. But Hillside is only required to allow this for a maximum of two hours at a time, and only up to 104 hours per year.
To estimate the value of the interruptibility benefit, Meridian said this gap could be filled by alternatives, such as 1,205MW of two-hour batteries. Based on recent battery procurement through the independent power procurement programme, a conservative estimate is that these would cost R3bn per year. This is significantly less than the R10bn per year discount enjoyed by Hillside, especially as battery costs are falling all the time.
Despite this, Eskom told Open Secrets that “comparable large-scale battery storage solutions at the time were unavailable and would have required substantial capital investment”.
Nersa misses the point
The deeper question is whether giving South32 such a sizeable discount is a good deal for the country. Eskom and Nersa argue it is – not only because it’s valuable to have a large anchor demand that allows for interruptibility, but also because of its broader socioeconomic contribution to Richards Bay and the wider economy.
There are two major problems with this argument.
The first is that while the agreement is now fully public, Nersa’s decision to approve this transaction is not, as it redacted key data from its decision. For example, it cites salaries to employees and tax revenue as key economic contributions from the Hillside smelter, but redacts the figures it used to calculate both. It also completely redacted the table that it claims shows the “value of the aluminium industry to South Africa”.
Nersa’s decision also contains contradictory information, claiming the smelter creates 3,000 direct jobs, while also citing Hillside’s testimony that it creates about 1,800. This does not instil confidence in the rigour of Nersa’s process.
Eskom told Open Secrets that large industrial users like Hillside “play a vital role in sustaining local economies”. But it also conceded that “South32 commissioned and provided to Eskom and Nersa an economic assessment of the Hillside smelter”, suggesting they relied on the company itself to determine how good it was for the local economy – a serious conflict of interest in a decision with vast implications for the public.
The second and more fundamental problem is that Nersa seemingly uses a simplistic and insufficient comparison as the basis for its decision. By Open Secrets’ reading – with the caveat that some figures are redacted – Nersa boldly estimates the economy would lose just over R70bn if there was no agreement and Hillside was closed. It compares this to its calculation of the discount – also redacted – and argues the losses would outweigh the discount given to Hillside. In other words, Nersa argues that without the agreement, there would be no Hillside, and that would result in economic losses.
But this ignores a key variable. A complete analysis would require that Nersa and Eskom fully determine the economic benefits created by supplying the same amount of power to new or other existing consumers. Hillside is incredibly energy intensive, and Eskom has not been able to provide sufficient power to the energy grid over the past decade. The electricity sold to it could be directed to a host of other actors.
As Meridian said: “A more reasonable comparison would be to consider whether the economic good Hillside generates from the power exceeds the value that a myriad other businesses around the country (both existing and new) could generate from the same power if Hillside were indeed to close.”
This analysis is seemingly absent from Nersa’s simplistic analysis. It claims the power sold to Hillside could not be absorbed by other consumers, but it provides no detail on the modelling used to reach this conclusion, pre-empting proper public scrutiny.
Eskom insisted to Open Secrets that there were “no major mining, manufacturing, or industrial projects anticipated that could absorb Hillside’s electricity offtake. If Hillside were to shut down, the impact would be felt across all other customers.”
The utility also claimed that other non-industrial customers would not have the same steady baseload demand, so would struggle to absorb the extra power.
Open Secrets asked Eskom and Nersa to provide detail about the modelling used to determine the tariff level, the annual increase, and the value of the interruptibility benefit.
But Eskom’s answer was non-specific, only indicating it was done in terms of the “interim Framework for Long-Term NPAs”, which requires that the “incentive price include an appropriate risk premium and be set as high as possible, taking into account the sustainability of both the applicant and the licensee’s cost of supply”.
Despite repeated requests, Nersa did not reply to the question.
Secretive pricing deals multiply
Full transparency and proper cost-benefit analyses are even more important given Eskom’s pursuit of a whole host of new such pricing agreements.
In late 2024, Eskom applied to Nersa to approve 10 such new agreements with energy intensive consumers in the aluminium, ferrochrome and silicon carbide sectors. This was in addition to the six-year deal with the Glencore-Merafe chrome smelter in Rustenburg, approved by Nersa in March 2024. Nersa’s decision on this Glencore deal is similarly redacted.
In January 2025, Nersa approved all of the agreements requested, but they are not available on Nersa’s website. This takes the proportion of Eskom’s power sold in terms of NPAs to more than 17%, while providing only 8% of Eskom’s revenue.
The problem is that consumers are carrying the extra costs of these deals, effectively subsidising the large companies.
In its request to Nersa in August 2024, Eskom admitted these new subsidies to high energy users necessitated higher prices for other customers. It indicated the new deals accounted for about 6% of its requested 36% price hike for the 2026 financial year.
These agreements thus have significant public impact, and it’s vital that the process to approve them – and the assumptions made – are fully public to allow for scrutiny.
Yet it appears Eskom has not learnt any lessons from this ordeal, nor from the 2013 court ruling against it. In response to Open Secrets’ requests to provide these new agreements, Eskom said it is “unable to provide the requested agreements and believes that Nersa is best placed to offer support or guidance on this matter”.
Windfall for South32
A new electricity pricing policy (EPP) is set to be published imminently, and Ramokgopa has said the government will review the methodology used by Nersa to determine tariffs, including for these pricing deals.
This comes as the ANC’s coalition partner, the DA, has criticised Eskom’s tariffs and the extent of the discounts afforded to intensive energy users.
It is essential that the new policy requires proper rigour from Nersa in assessing Eskom’s applications for these agreements. Equally important is that the policy should require that the process of reaching these deals be fully public. All models, assumptions and analysis – including data submitted by Eskom and the company – must be public.
This is the only way to allow for proper oversight and accountability, and ensure that decisions to subsidise intensive energy users can be properly scrutinised by the public.
Ultimately the question is whether the R92bn gift provided to South32 is perceived as fair; millions of South Africans who are paying more in electricity costs to subsidise a company valued at R148bn might answer with a resounding “no”.
Not everyone is a loser though. South 32 CEO Graham Kerr earned R74m last year. That’s over R200,000 every day. South32 – headquartered in Australia – also paid nearly R3bn in dividends to its shareholders in 2024.
So, while Eskom’s largesse has not benefited most South Africans, it has helped feather the nest of some very privileged executives at South32, along with the company’s shareholders.
Despite indicating that it would respond to questions sent on April 16, Nersa has not yet done so, indicating that it is “still waiting for more information from the relevant department”. This article will be updated should a substantive response be received.
Michael Marchant is head of investigations at Open Secrets.
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