The government has yielded to pressure from ferrochrome majors, granting the sector a hefty 54% electricity tariff reduction in a move that energy minister Kgosientsho Ramokgopa says will not only save jobs but also rake in about R76bn in export earnings.
Ramokgopa on Friday announced a smelter support package, which he said will add just shy of R18bn to Eskom’s bottom line, as dozens of idle smelters come back online over the next two years.
“This is the single biggest announcement I’ve made in my time [as minister],” said Ramokgopa.
“We are starting [with Glencore and Samancor], but we are coming for everyone. We have about 66 smelters in the country, but only 11 remain operational at current prices. By December we expect to have 45 smelters operating as a result of this intervention.”
The announcement comes just one day before the February 28 deadline provided by Glencore to identify a workable energy solution for its Lion, Boshoek and Wonderkop ferrochrome smelters, which began handing out retrenchment notices to 2,500 workers late last year.
Ramokgopa said Eskom would meet the industry’s demand for a 62c/kWh tariff, which is more than 54% below the R1.36 rate they previously paid. The groups have been given an interim tariff of 87.74c per kilowatt hour since January.
This massive tariff relief will come as part of a broader smelter support package which Glencore and Samancor, another chrome smelting giant, are now considering. If they agree to it, the proposal will be handed over to energy regulator Nersa for approval.
Ramokgopa said he expects to have 49 smelters up and running by December 2027 — 74% of the country’s total. He estimated that 11,418 direct jobs would be created.
“Indirectly, we’re talking about 121,392 jobs, which means that many more families are able to put food on the table,” he said.
Aside from adding scores of new taxpayers, the intervention is expected to add R5.5bn to the nation’s tax revenue.
“As a result of this intervention, [finance] minister [Enoch] Godongwana will have an additional R5.5bn to reallocate in the South African economy.
“We are not subsidising this industry; we are making it more competitive.”
The plan aims to completely revitalise South Africa’s ferrochrome sector by levelling the electricity price playing field with China.
China, which started constructing huge ferrochrome plants at home and in Mongolia from about 2012, has gradually taken South Africa’s share of the ferrochrome market by offering electricity that is more than 50% cheaper than in South Africa.
Eskom CEO Dan Marokane told journalists that to protect ordinary consumers from footing the bill, the intervention would be supported “within the context of Eskom’s existing debt relief programme”.
“Given the business performance and outlook, the R10bn outstanding from the last tranche of Eskom’s debt relief programme will be directed towards this intervention,” he said.
The huge relief comes after the ANC identified rebuilding the chrome sector as one of the key levers for economic growth in its economic turnaround plan, adopted by its national executive committee in November.
The 10-point economic action plan aims to unlock more value from the chrome industry through trade tools and industrial energy relief.
Preferential electricity tariffs, export controls and infrastructure investment in the chrome industry are among the policy approaches outlined in the plan.
Concern about the price of Eskom’s power has elicited widespread disquiet across the mining sector, and Glencore’s precedent-setting deal could result in a number of distressed heavy consumers of Eskom’s power also joining the queue for similar relief.
Notably, though, Ramokgopa said this intervention would not extend to the closure of South32’s huge Mozambican smelter, which will see about 25,000 workers retrenched next month.
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