Billiton fires Standard Bank for ‘reckless talk’

Charlotte Mathews, Business Day, 28 March 2008

Global resources giant BHP Billiton has decided to terminate R2,4bn worth of annual business with Standard Bank after a top bank executive suggested at a recent high-level business and government meeting that Billiton’s Hillside aluminium smelter be shut down to save electricity.

The fallout between the two corporate giants is the latest sign of tension over SA’s power shortage, which saw the mining sector shut down for four days in January and forced to operate at 90% power last month , despite global commodity prices reaching unprecedented highs.

Neither Standard Bank nor Billiton would name the person who made the comment.

Billiton operates two aluminium smelters at Richards Bay, Hillside and Bayside, and one in Mozambique.

Last week the group said that it would close two potlines at Bayside, resulting in a loss of about 800 jobs, to reduce the group’s South African electricity consumption by 10%.

In a letter sent to employees this week, Billiton SA chairman Vincent Maphai said the remarks by the Standard Bank person at a Business Leadership meeting in Cape Town were “reckless, provocative and irresponsible”.

The suggestion of closing Hillside was based on the banker’s belief that it did not add any economic value to the country and was consuming a great deal of electricity.

“This attitude is completely misplaced,” Maphai wrote. “ The fact that several years ago BHP Billiton initiated highly capital intensive aluminium projects in the region to use capacity for which Eskom did not have immediate use now seems to be ignored, even by those who ought to know better. The smelters have become the backbone of the KwaZulu-Natal economy, especially the Richards Bay area.”

Business Leadership SA CEO Michael Spicer said the context of the remarks would have been a meeting between very senior business executives and the government, during which ideas to address the power crisis were exchanged. The Billiton-Standard Bank matter was between them and it was not appropriate for Business Leadership to comment on it.

Maphai said the decision to terminate business with Standard Bank on a phased basis, starting with foreign exchange, money market accounts and guarantees, had been taken with the full support of Billiton CEO Marius Kloppers and the group’s ferrous and coal division CE, Marcus Randolph.
Billiton spokeswoman Bronwyn Wilkinson said the reasons had been conveyed to the bank.

Standard Bank acknowledged in a statement that it had received correspondence from Billiton about the national electricity challenge.

“Standard Bank has a valued relationship with BHP Billiton, having provided it with a range of banking services for many years, and we will engage with BHP Billiton on this particular matter as a part of this relationship,” it said.

International rating agency Standard & Poor’s MD in SA, Konrad Reuss, said he could see logic in the argument that SA should delay or avoid building new aluminium smelters because they were so energy intensive. But the argument in favour of existing smelters was the same as it was for SA’s sales of electricity to neighbouring countries: there were contracts in place.

In any case, Reuss said, electricity prices in SA would have to rise irrespective of whether new aluminium smelters were built. SA had enjoyed very cheap electricity and to attract new investment in the electricity sector, it would have to establish a tariff that enabled investors to make a profit.


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