PETER BRUCE | The ANC’s big de-industrialisation bet

The government, or at least the ANC part of it, believes it is on the cusp of a major breakthrough in its 20-year-long effort to reverse South Africa’s relentless de-industrialisation. It is about to take a big bet.

It all started last December when the country’s last two producers of ferrochrome, Glencore and Samancor, were on the brink of quitting the business of smelting down chromite ore — of which we have the world’s largest reserves — and closing down the few remaining working furnaces. It would mean all of the ores mined here would now be exported, unprocessed, predominantly to China.

Glencore issued section 189 redundancy notices to its smelter employees, and they would have been out of work by the new year.

Jolted by the news, the state finally responded to industry claims that local electricity tariffs of R1.35/kWh made processing the ore here uncompetitive. After dramatic talks before Christmas, Eskom sent the ferrochrome producers a signed MOU promising to meet their demand for a tariff of just 62c/kWh by the end of February.

It would enable Glencore and Samancor smelters to reopen about 24 furnaces. The producers felt they’d persuaded Eskom that a model whereby the producers would supply coal to Eskom at market prices but, in effect, rent underused capacity at Eskom power plants to produce power and then pay for it to be wheeled to their furnaces would work. They would become virtual independent power producers (IPPs), supplying power to the grid like private solar or wind projects do.

Then things went quiet. Eskom produced an interim tariff of 87c/kWh as promised at the end of January, but that kept alive just a few Samancor furnaces.

Ferrochrome is vital to produce stainless steel, but behind the scenes other smelter sectors had piled into Eskom: if ferrochrome could get 62c/kWh, why should calcium carbide, ferrosilicon and ferromanganese smelters have to pay twice that rate?

So, last Friday, Eskom called a media briefing. Electricity minister Kgosientsho Ramokgopa, fresh from being “corrected” by President Cyril Ramaphosa for trying to support efforts by Eskom to avoid transferring its transmission lines to a new independent offshoot, stood up.

“Today’s a good day,” he declared. “We are exceptionally proud of what we are about to announce.” And it was big. Out of the window went the original IPP idea — Eskom wasn’t letting go of any more of its role in the economy.

Ramokgopa said yes, the ferrochrome producers would get their 62c/kWh, but the plan had billowed into a huge endeavour to get, by the end of this year, not 24 but 45 furnaces up and running, and 49 by the end of 2027.

The 49 would include some of the other ferrous ores used in steel production, but when you consider that by the time Eskom and the producers first sat down in December, just four furnaces were operating country-wide, the leap to 45 in the next 10 months is breathtaking. And possibly not even possible.

Most of the smelting capacity Ramokgopa wants it reopened and has long moved to China, from which we now import. Is there enough ferrochrome demand in the world, let alone at home, for the extra processing capacity? Do we now compete with the Chinese smelters? Do we ban the export of unprocessed ores?

Industry insiders say it would take import tariffs of 52% for local producers of steel and steel elements to compete at home on price.

Most of the smelting capacity Ramokgopa wants reopened has long moved to China, from which we now import.

And we still don’t know what conditions Eskom might impose on producers in return for the 62c/kWh tariff. The two sides have until the end of March to agree. Do they really have to open all those furnaces? Do they have to guarantee Eskom fixed levels of power offtake? What if ferrochrome prices fall? Or, if they rise, does Eskom get a cut?

In one fell swoop though, Ramokgopa is offering Ramaphosa a policy victory he could only have dreamt of in December — an overnight reversal of the wave of smelter closures that had made a cruel joke of the ANC’s repeated promises to re-industrialise. Now it’s suddenly almost real. The ferrochrome producers aren’t talking, but there’s palpable excitement among old hands in the minerals business. Can it really be?

There are multiple reasons to be sceptical. The ANC is hopeless at implementing policy, and the world is changing fast. In a way, the Ramokgopa proposition takes us back to the old apartheid siege economy – put up the barriers, and we can do it all ourselves.

But can we really, 30 years on, outsmart the markets, keep Eskom alive and relevant and export freely? It’s far from certain.

• Bruce is a former editor of Business Day and the Financial Mail.