By 3pm on Sunday it was down to the wire. For two days Eskom executives had been negotiating a steep price cut in the electricity they provide to South Africa’s once great ferrochrome industry, but if they could not reach agreement then Glencore, one of the two remaining big chromite miners and smelters, would go ahead the next morning with a redundancy programme and stop making ferrochrome here altogether, and would soon be followed by the other remainer, Samancor.
South Africa has the world’s biggest deposits of chrome ore and the miners once had access to 59 furnaces at local smelting plants. By Sunday night there were just four working furnaces left, all Samancor’s. Glencore’s had already shut. Thousands of jobs were on the line.
What closed them was increasingly expensive electricity from Eskom. Now the miners/smelters drew a line in the sand — unless Eskom could agree, from the next day, to cut its price to them from around 120c/kWh to 62c/kWh, the remaining smelters would shut down and the relentless de-industrialisation of our economy would gather pace.
READ | Eskom throws ferrochrome producers a lifeline
But by Sunday lunch the talks had stalled. Eskom could not get to the 62c target immediately and proposed an interim 87c/kWh for three months. The miners were suspicious. What if Eskom walked away and didn’t return?
The miners were desperate. It got to the point where someone had to guarantee that Eskom, if it signed at 62c for three months hence, would stick to its word. The only person who could do that was President Cyril Ramaphosa.
I’m not sure who called him — either his Operation Vulindlela head, Rudi Dicks, or the presidency’s investment adviser, Alistair Ruiters. Both were in the talks. Towards the evening Ramaphosa called the global CEO of Glencore, Gary Nagle, and gave him his word. Eskom would get a signed MOU, based on 62c/kWh, for 24 ferrocrome smelters between Glencore and Samancor, to the miners the following morning. It duly arrived just after 8am.
Ramaphosa will have made some big phone calls in his time, and this one was up there. Glencore suspended its S189 retrenchment process, and if there is a way to apply the same principles to swathes of plant that were shuttered all around the country as Eskom cranked up prices to survive, an actual reversal of our downward industrial slide may just begin to become a prospect.
But these are early days and Eskom still has to deliver what it signed up for. The whole arrangement is seriously innovative. Glencore and Samancor, with the Industrial Development Corporation, will create the equivalent of an independent power producer (an IPP as per private wind farms) and sell coal, at cost, to Eskom, which will burn it in underused power stations like Hendrina, Duvha or Grootvlei, and then wheel the resultant electricity to the smelters.
It doesn’t affect Eskom’s delicate balance sheet. With some R254bn in support from the National Treasury, Eskom can’t afford to be generous, let alone the fact that it needs to sell debt in the bond markets. But still, the deal raises critical questions for Ramaphosa.
Ferrochrome is critical to the production of stainless steel so could the arrangement be applied to other struggling energy-thirsty ore-processing industries? Does Eskom have the capacity? The coal is available only because Transnet is so inefficient that it can’t easily be exported. What if Ramaphosa’s rail reform actually works? Is the coal exportable again? If ever there was an industrial revival in South Africa, could Eskom power it?
Because if it could, another difficult question must be answered: why, as Indonesia has done, should it not be required that all minerals mined here (apart from coal, which is burned) be processed to some minimal extent before being exported at all?
• Bruce is a former editor of Business Day and the Financial Mail.
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