The Steel and Engineering Industries Federation of Southern Africa (Seifsa) is calling on the government to increase private sector participation in the generation and supply of electricity, saying there is a natural incentive for businesses to solve the crisis.
The steel and engineering sector accounts for 26% of manufacturing, making it the second-largest component of this sector after agro-processing.
The steel industry is one of the heaviest users of electricity in the country, and some of Seifsa’s members are Eskom’s largest customers.
The frequent and longer load-shedding hours are beginning to take their toll on the sector, which has already been saddled with other challenges such as a dour operating environment.
The upstream steel and engineering sector, made up of steel mills that rely heavily on furnaces and foundries, has high electricity requirements. In this sector, electricity costs can make up anything from 25% to 30% of total costs, making it a considerable cost item.
While the downstream industries that are relatively less energy intensive are able to make provisions for alternative energy solutions, the cost of running these alternatives is prohibitive.
Speaking to Business Day after an audience with the presidency on the crisis, the federation’s COO, Tafadzwa Chibanguza, said the recent 18% and 12% rise in tariffs approved by energy regulator Nersa have damaging implications for the federation’s members. Most are already sacrificing the long-term capital meant for expansion on survival due to load-shedding.
“At 18%, it’s considerably above inflation and at a time when Eskom can’t even provide the energy,” said Chibanguza. “We as an industry and the members we represent are in essence the hard-core economy that needs electricity to function, so for that reason, a solution has to be made, be it with Eskom or not.”
He said a multidisciplinary approach allowing the private sector to bring in its skills and resources to energy production was needed.
“Allow the private sector to generate as much as they can, make it easy as possible for IPPs [independent power producers] to set up energy plants and supply,” said Chibanguza.
“It’s in their commercial interests to do so because the current crisis where there is no electricity makes the operating environment so much more difficult, so the incentive for them to participate is there.
“Right now the crisis determines that we need to put the entire shortfall on a bid window and the private sector will show up,” he said, saying there was enough private sector capital, capability and appetite to help the power stations.
Chibanguza said the fact that companies must make alternative plans for electricity during load-shedding effectively pushes up electricity costs to more than the 18.65% and 12.74% granted for the 2023/2024 and 2024/2025 years, respectively.
Despite making alternative plans during blackouts, the sector remains at the mercy of Eskom as the large volumes of electricity needed in the steel manufacturing process are overwhelming for any generator or solar alternative.
“They are tied to Eskom because the extent of their consumption doesn’t allow them to put up a solar system or even a generator strong enough to power plants,” he said.
He said the Treasury also had a role to play in the form of tax breaks, rebates or incentives for companies and households that resort to alternative energy solutions.
“Right now companies are doing it for survival, but if you add the sweetener incentive ... they will chase it because the current environment is so punitive and disruptive that it’s almost a no-brainer that they would participate or take advantage of those incentives,” Chibanguza said.
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