Eskom and Glencore have sketched a deal to carve out dedicated electricity from specific power stations and sell it under a contract designed to keep furnaces running and shield Eskom from volatile coal price risk.
A memorandum of understanding (MoU), a draft of which was seen by Business Day, is the latest attempt to preserve jobs, keep up to 12 furnaces running and anchor beneficiation without an open-ended fiscal burden.
The MoU outlines the so-called Coal-Conversion Power Purchase Agreement framework that would ring-fence Eskom’s capacity, separate coal costs from the cost of turning coal into electricity, and set a target price.
The deal was brokered on Monday after months of tense negotiations between the nation’s power utility and its two last remaining ferrochrome producers.
Sources familiar with the matter said President Cyril Ramaphosa reassured Glencore CEO Gary Nagle in an early Sunday evening phone call that Eskom will honour its commitment to the solution, which will effectively cut the cost of Glencore and Samancor’s electricity in half.
Business Day has reliably learnt that the MoU will see the ferrochrome producers essentially forming an independent power producer to supply coal, at cost, to Eskom, which will then wheel the equivalent amount of power to 12 of Glencore and Samancor’s furnaces each, equivalent to about half of their installed capacity.
In a statement on Monday, Eskom confirmed it is working on a long-term intervention for the ferrochrome sector, saying the joint process persuaded smelters to suspend laying off workers and to bring about 40% of furnaces back online.
It said SA’s national energy regulator (Nersa) has begun processing an application for an interim tariff adjustment for the struggling smelters.
The government is also working on a “complementary mechanism to support a more competitive pricing path for the sector”, which is expected to be finalised over the next three months.
Deadline
The Glencore-Merafe chrome venture had given the government until Monday (December 8) to offer it more competitive electricity tariffs before pulling the trigger on 2,500 retrenchments and the closure of its Wonderkop and Boshoek smelters.
Samancor Chrome had also threatened to slim down its operations in response to high energy costs next year, with 2,496 jobs on the line, according to labour union Solidarity.
The MoU slots into Ramaphosa’s narrative that South Africa’s economic recovery rests on private sector capital, as finance minister Enoch Godongwana and SOEs grapple with fiscal and cash constraints that have the potential to reverse gains in credit ratings in the past few years.
The bespoke deal could trigger the revival of one of SA’s last remaining mineral processing industries, which has been all but handed over to China over the past few decades, lending credibility to the government’s promise of reversing the deindustrialisation of the economy.
SA has 70%-80% of the world’s chrome ore reserves. However, its declining competitive position in the global ferrochrome market has led to a reduction in production capacity.
Eskom’s ballooning electricity prices have forced more than half of South Africa’s 59 chrome furnaces to close in recent years, according to mineral & petroleum resources minister Gwede Mantashe.
Chrome producers broadly agree that the heart of the issue is the unaffordability of power. Since 2007 electricity tariffs have increased 937% on average, more than six times consumer inflation over the same period.
“Eskom welcomes the collaborative efforts of government, labour, and industry. The MoU creates a structured process to find a sustainable and responsible solution that maintains industrial capacity while protecting broader electricity consumers,” said Eskom group CEO Dan Marokane.
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