ArcelorMittal SA (Amsa) recently secured a notable victory with the National Energy Regulator of SA (Nersa). This has sparked heated debate on the role of the state, utilities, regulators and the private sector in balancing the scales of SA’s economy.
The approval of negotiated pricing agreements, designed to avert imminent job losses, has reignited concerns about the country’s tariff methodology, the sustainability of its electricity pricing model and the consequences of public money cushioning private sector failure.
At the heart of the controversy lies the principle of socialising losses while externalising profits. Amsa, historically the largest steel producer in SA, argued that elevated electricity tariffs threatened its operational viability, putting at risk thousands of jobs at its facilities. In response, Nersa authorised a tariff structure that in effect subsidises Amsa’s electricity costs.
However, this intervention raises the question: who ultimately bears the burden of these concessions? The answer is the SA public, which ends up absorbing private sector losses while Amsa retains financial gains when market conditions are favourable.
In Eskom’s multiyear price determination there is an allowance to recover revenue lost through negotiated pricing agreements. In practice, this means the broader consumer base is making up for the shortfall created by giving certain energy-intensive users preferential rates. The methodology underpinning this arrangement needs a comprehensive overhaul to improve fairness, transparency and economic and allocative efficiency.
While the preservation of jobs at Amsa is often cited as justification for the agreements, the decision’s knock-on effect could place thousands of other jobs in jeopardy. By introducing increased socialised tariffs, the costs shifted onto the broader electricity consumer base — households, municipalities and other businesses — are set to increase. This introduces inflation, erodes the competitiveness of other industries, and suppress much-needed job creation elsewhere, creating a paradox where a measure intended to save jobs in one sector threatens employment in others.
The Amsa case exemplifies a scenario where public funds are deployed to rescue a private entity grappling with declining sales and revenue. This sets a precedent that could invite similar bailout requests from other struggling industries, creating a slippery slope of rising tariffs and further stress on the Eskom and municipal revenue models. The long-term sustainability of this approach is questionable, especially in a zero-growth economic environment.
A year ago Amsa was preparing to break ground on two 100MW solar PV facilities to offset its electricity needs and costs, but it continued to rely on grid-supplied power and lobbied for concessions instead. This behaviour underscores a broader challenge within the industrial sector often referred to as “lemon socialism”.
Even after securing tariff relief, Amsa will still find itself uncompetitive both domestically and internationally. With the economy stagnating and demand for steel in decline, no number of temporary concessions will address the root issues confronting the industry. The real challenge lies in the lack of economic growth, declining demand and escalating input costs.
Ultimately, the negotiated pricing agreement highlights a troubling trend: SA is subsidising a private sector company for losses driven not by structural flaws in the tariff regime but by declining sales and lack of competitiveness. As more entities seek similar relief, the risk grows of escalating electricity prices across the board, undermining the economy’s capacity to grow, create jobs and attract investment.
Amsa’s victory with Nersa is a microcosm of the broader challenges facing SA’s energy and industrial policy. It underscores the urgent need for a comprehensive overhaul of tariff methodologies. Without deliberate and strategic intervention, the cycle of tariff concession, inflation and economic stagnation is set to continue, at the expense of SA’s long-term prosperity.
• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.
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