Eskom has asked the National Energy Regulator of South Africa (Nersa) to fast-track its application for a 54% tariff relief for ferrochrome majors, aiming to secure approval by end-May.
The agreement between Eskom, Samancor and the Glencore and Merafe joint venture, if endorsed by Nersa, will see Eskom receive a share of profits if the global market landscape shifts and profitability increases for Glencore.
Another key part of the agreement will see the parties agree on a mutual hardship clause, which typically allows the parties to renegotiate commercial terms when unforeseen, external circumstances make performance unsustainable for one party while providing an unfair advantage to the other.
Between them, Samancor and Glencore produce half of South Africa’s ferrochrome output capacity, which has been hamstrung by the country’s high energy prices.
Nersa in its public consultation paper released on Wednesday, in furtherance of Eskom’s request for an expedited process, gave members of the public one month to weigh in on the application.
The urgency of the matter is that thousands of jobs are on the line unless a speedy approval is achieved, with the Glencore and Merafe JV having already held off retrenching about 2,500 workers pending the relief.
Nersa’s consultation paper lays out the case to amend Glencore and Samancor’s negotiated pricing agreements, offering the mining giants substantial discounts on their electricity bills with a series of new clauses to protect Eskom and its customers.
The new framework, proposed by Eskom earlier this month after weeks of tense negotiations with the industry, outlines a ring-fenced agreement that would act as a temporary lifeline to the country’s struggling ferrochrome smelters to avoid permanent tariff concessions and “irreversible revenue impacts for Eskom”.
It comes just a few days after Eskom asked Nersa to sign off on a 62c per kilowatt hour (kWh) electricity tariff, essentially staving off a wave of retrenchments that Glencore had threatened to implement over the past year.
The proposed 62c rate is more than 54% below the R1.36 rate previously paid by the smelters and well below the interim tariff of 87.74c they have faced since January.
“Without this intervention, there is a high likelihood of substantial job losses and broader economy disruption, particularly given South Africa’s high unemployment rate,” reads the consultation paper.
If the smelters are mothballed, the country risks losing 12.8 terrawatt hours of strategic industrial load, warned Nersa.
Without this intervention, there is a high likelihood of substantial job losses and broader economy disruption, particularly given South Africa’s high unemployment rate.
— Consultation paper
“Failure to retain this demand would lead to permanent load loss rather than temporary curtailment, resulting in irreversible revenue impacts for Eskom.”
About 2,500 workers at the Boshoek, Wonderkop and Lion smelters in the North West and KwaZulu-Natal have been on the brink of losing their jobs amid a tariff tug-of-war in the ferrochrome sector.
Further job losses could follow if the industry continues to erode at the current rate. 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.
The new negotiated pricing agreements would establish a targeted price path for electricity tariffs which takes into account the price of ferrochrome and which shifts in line with the producer price index annually.
When ferrochrome prices exceed an agreed baseline in any given month, Nersa proposes that an “upside-sharing mechanism” splits the resultant profit 50/50 between Eskom and the miners.
It also includes a “take or pay” provision, meaning that the smelters would be required to pay a penalty if they do not purchase the agreed baseline amount of electricity.
It allows Eskom and the smelters to terminate the agreement in the case of economic hardship.
Nersa emphasised that the proposed pricing agreements are only a temporary mechanism, not a permanent tariff concession. Meanwhile, the department of electricity & energy, with the smelters, will develop a “long-term, self-sustaining solution”.
Ramokgopa told journalists last month that the huge tariff relief given to Glencore and Samancor would come as part of a broader, sector-wide smelter support package that aims to completely revitalise South Africa’s ferrochrome sector by levelling the electricity price playing field with China.
China began constructing ferrochrome plants in 2012 and has since leapfrogged the local industry, largely by offering electricity that is about 50% cheaper than South Africa’s.
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.
The huge relief also 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 public comment period for Nersa’s consultation paper will close on May 22, after which a special electricity subcommittee will make their decision, followed by the energy regulator.
Stakeholders were asked to comment on the socioeconomic and employment impacts of the ferrochrome industry, including its impact on job creation, community livelihoods and regional economic stability, and whether the proposed intervention is justified.
“Eskom proposes that the revised tariff framework take effect from the first day of the calendar month following approval by Nersa and apply to six Samancor and four Glencore ferrochrome smelters,” the consultation paper reads.
“Eskom further notes that the framework is temporary and transitional, aimed at stabilising the sector while a long-term, self-sustaining solution is developed in collaboration with the department of electricity & energy and the smelters.
“The proposed relief will be ring-fenced, supported by strong contractual safeguards and implemented as a load-retention and system-optimisation measure rather than a permanent tariff concession.”
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