S Africa's Eskom, Alcan sign 25-year power supply agreement

South Africa's Eskom Friday signed a multibillion rand 25-year electricity supply agreement with Canadian aluminium concern Alcan Inc., paving the way for one of the biggest-ever foreign direct investments in Africa.

The power agreement could lead to the building of a ZAR21 billion ($2.9 billion) aluminium smelter in the Coega Industrial Development Zone outside Port Elizabeth in the Eastern Cape. The conclusion of the power supply agreement is a major milestone for the project and will certainly boost investor confidence in the region and South Africa.

"The reliable supply of cost-effective power to the proposed smelter in Coega has been key to Alcan's decision to invest in South Africa. The signing of the contract today paves the way for the project," said Eskom Chief Executive Thulani Gcabashe.

The agreement makes provision for the supply of 1,300 megawatts of power.

State-owned Eskom said in a statement on its Web site that it will be investing some ZAR6.4 billion on its high voltage transmission infrastructure in order to supply the power needed for the smelter.

Work has already commenced on the infrastructure upgrade which includes building seven substations, about 1,300 kilometers of a 765 kilovolt and 141 kilometers of 400 kV transmission lines. Routing of the lines will be guided by several Environmental Impact Assessment studies being conducted for the project.

The Alcan project will be the first project to benefit from the South African Department of Trade and Industry's Developmental Electricity Pricing Program, which is designed to stimulate energy intensive investment in South Africa.

This has been a collaborative project involving several role-players including the Department of Trade and Industry, the Industrial Development Corporation and the Coega Development Corporation, which is responsible for the Coega Industrial Development Zone.

The negotiations for the power supply agreement began in 2001 with Aluminium Pechiney. In 2003, Alcan took over Pechiney and proceeded to engage Eskom as well as various other stakeholders for the establishment of an aluminium smelter in South Africa.