A WRANGLE over power supply has finally ended the long-running dream of a R20-billion aluminium smelter at the Coega industrial development zone in Mandela Bay.

A joint statement last night from the four major organisations involved – including proposed developer Rio Tinto Alcan and Eskom – said a crucial electricity agreement for subsidised power, a key motivator for situating the smelter at Coega, had been terminated.

Eskom immediately came under fire for the failure of the plan, which would have created thousands of permanent jobs in the IDZ and even more during the building phase.

PE Regional Chamber of Commerce and Industry chief executive Kevin Hustler said the organisation was “saddened” by the failure.

In a diplomatically put swipe at Eskom, Hustler added that “efficient and reliable electricity supply is a critical factor in attracting industrial investment ... and Eskom thus plays a crucial role in this country’s ability to attract and retain investment. Investors need certainty and stability, and it is essential that Eskom demonstrate that they take seriously their responsibility for providing the right conditions to attract and retain investment.”

The news of the “termination” of the electricity deal – and, effectively, the long-held dream of a smelter in the IDZ, observers said – came seven years after it was first announced and with close to R1-billion invested by the developers.

The 2002 go-ahead for the smelter was announced in a hail of national and international publicity as it was to be the anchor manufacturer at the IDZ.

But the plan has been dogged by setbacks and delays, first with original French developer Pechiney being taken over by Canadian-based Alcan, itself later taken over by mining giant Rio Tinto.

Each new owner restated its commitment to Coega and the deal seemed to be virtually certain when Alcan and Eskom entered into an electricity agreement at the end of 2006 for the supply of power at preferential rates, with reports saying the deal was worth billions of rand.

It was then announced that construction of the smelter, which would have covered about 100ha, was scheduled to begin in September last year.

But before that came South Africa’s blackouts, alluded to in detail in the joint statement last night from the two main parties, as well as the Trade and Industry Department and the Industrial Development Corporation (IDC).

“In the wake of South Africa’s unplanned power outages in early 2008, a high-level task force consisting of representatives from the government, Rio Tinto Alcan, the IDC and Eskom was established to examine alternative timing and approaches to realising the Coega project,” the statement read.

Now, however, “the parties agree that the current context regarding the supply of electricity has changed significantly and some of the terms of existing agreements would require further discussion and negotiation”.

Eskom has been rationing electricity since early last year and has since launched a R385-billion expansion programme to boost supply, but has repeatedly said that the system continues to be tight, especially as the utility struggles to raise more funds to expand further. New power stations will take years to come on stream.

There has also been a huge outcry over Eskom proposals, disclosed this week, to triple tariffs in the next three years.

Still holding out some hope of the project going ahead some time in the future, the “parties also concur that it is of utmost importance that a project like the Coega aluminium smelter come on stream”.

But that would be only “when power is reliably available and the facility’s consumption does not impact (on) the daily needs of South Africans”.

Eskom chief executive Jacob Maroga said simply last night: “Eskom is committed to the continuation of the strengthening of the transmission infrastructure to the Eastern Cape in order to cater for future growth in the area.”

Rio Tinto Alcan’s Africa executive, Guy Larin, said the firm “is willing to pursue discussions with our key partners and stakeholders”.

The company “remain(s) ready to assist South Africa in realising the considerable benefits of a smelter project in the Port Elizabeth area”, but he stressed a long-term, competitive power supply agreement” would be essential and would need to be renegotiated.

Rio Tinto Alcan would still “respect its existing social, environmental and skills development commitments in the Nelson Mandela Bay area”, Larin added.