Eskom announced on Friday that it had put forward a last-minute tariff proposal of 62 cents per kilowatt-hour (62c/kWh) to major ferrochrome producers Glencore‑Merafe Chrome Venture and Samancor. However, the utility made it clear that the exact terms and conditions of this discounted electricity package are still under negotiation and will require finalisation before being submitted for regulatory approval.
Key Terms Explained
- Take-or-pay commitments: These are contractual obligations where buyers agree to purchase a minimum quantity of electricity (or pay a penalty if they do not). This ensures revenue certainty for the supplier, even if the buyer does not use the agreed amount.
- TWh (terawatt-hours): This is a standard unit of energy measurement. One TWh equals one trillion watt-hours and is used to quantify large-scale electricity consumption or production.
- Beneficiation: This is the process of improving the economic value of minerals by removing impurities or transforming raw materials into more valuable products for further use or export.
Details of the Tariff Package and Regulatory Process
The specifics of Eskom’s offer—including its structure, duration, take-or-pay commitments, and how risks and rewards may be shared—will be disclosed only once negotiations conclude. These details will be made public when Eskom submits the proposal to the National Energy Regulator of South Africa (Nersa) for review and approval. Eskom CEO Dan Marokane emphasised, “The terms and conditions will be shared transparently both in the submission and during Nersa’s public participation process.”
Marokane further indicated that the package prepared for Glencore‑Merafe Chrome Venture and Samancor could serve as a template for a standardised smelter offer, potentially benefitting other ferroalloy producers, such as those processing manganese and vanadium. However, no timeline was provided for when Nersa’s decision on the ferrochrome offer would be finalised, or when a broader standard offer might be introduced.
Potential Economic Impact: Stimulating Local Economies and Growth
Restarting mothballed smelter capacity could deliver significant benefits to South Africa’s economy. By bringing idle facilities back into operation, the initiative has the potential to stimulate local economies, secure and create jobs, and support upstream and downstream industries such as mining, logistics, and equipment manufacturing. Increased industrial activity could boost regional development and contribute to overall GDP growth through higher demand for goods, services, and infrastructure. According to Electricity and Energy Minister Dr Kgosientsho Ramokgopa, “There is potential to restart mothballed capacity and raise the number of smelters in operation from 11 currently to 49 by the end of 2027, and increase employment in the sector from about 11,400 people to over 121,000 people over the same period.”
Stakeholder Perspectives and Consumer Concerns
Eskom CEO Dan Marokane assured the public that other electricity customers would not be required to subsidise the reduced tariff offered to smelters. “The initial funding to close the revenue gap will be secured within the framework of the existing R230-billion debt relief package from government, including a R10-billion transfer from the National Treasury to Eskom for this year,” he said. Eskom is also aiming to achieve cumulative savings of R112-billion by 2029 to fund lower tariffs for smelters without causing future standard tariff increases to exceed single-digit percentages.
The current Eskom standard tariff stands at 195.95c/kWh, which already incorporates subsidies for certain industrial customers under negotiated agreements. The urgency of the offer was underscored by its announcement just before the 28 February deadline, set to prevent further reductions in smelter operations and associated job losses. Minister Ramokgopa expressed optimism, saying the offer “would be sufficient to avert large-scale planned retrenchments.”
Marokane highlighted the strategic importance of smelters to Eskom’s overall demand profile. Restored demand from Glencore‑Merafe Chrome Venture and Samancor would account for annual electricity sales of 12.8 TWh, and the return of other smelters could increase this to 26 TWh, excluding large aluminium smelters.
Acknowledging potential discontent from other electricity users, Minister Ramokgopa noted, “Other electricity consumers, including struggling households and businesses, might perceive the offer being made to the smelters as unfair.” He emphasised, however, that the decision was based on complex trade-offs, considering job preservation, industrial capacity, and supporting South Africa’s ambitions in critical minerals and beneficiation. The Minister further stated that upcoming revisions to the electricity pricing policy would “seek to ensure greater fairness by outlining support for poor households and small businesses, alongside efforts to sustain strategic beneficiation and industrial capacity.”
In summary, Eskom’s proposed tariff package for ferrochrome smelters is still under negotiation and subject to regulatory approval, with the promise of transparency and wider economic benefits. While the plan has the potential to revitalise the smelting industry, stimulate economic growth, and protect jobs, its fairness and broader impact will continue to be scrutinised by all stakeholders.