S.Africa looks to recoup $40 mln from Eskom

CAPE TOWN (Reuters) - South African power utility Eskom may have to refund the government 300 million rand used to build power lines for Rio Tinto's cancelled Coega aluminium smelter, a minister said on Wednesday.

South Africa's department of trade and industry allocated the funds to Eskom before global miner Rio Tinto last month scrapped its plan to build the smelter on the southern coast of Africa's largest economy due to power shortages in the country.

"The department made a payment of 300 million rand to Eskom as contribution to the cost of constructing power lines to the Coega Industrial Development Zone, which power lines would have among others provided power to the planned aluminium smelter project," Trade and Industry Minister Rob Davies said in a written response to a parliamentary question.

"The department is in the process of conducting an assessment in order to determine whether to claim these funds from Eskom or alternatively to redirect them to the supply of electricity for other planned projects at the Coega IDZ," he said.

Eskom has been rationing electricity since early last year when the national grid nearly collapsed, forcing mines and smelters to shut and costing the South African economy billions of dollars.

Davies also said no enquiry was commissioned into the smelter project's cancellation because the reasons were well known.

"The cancellation came about as a result of the current context regarding the supply of electricity which has changed significantly from the time when Eskom entered into agreement with Alcan," Davies said.

The project was cancelled by mutual agreement between government, Eskom and Rio Tinto-Alcan. Alcan, later bought by Rio Tinto, struck a deal with Eskom in 2006 to supply power to the 720,000 tonne greenfield smelter.