Smelters will not survive 15% Eskom tariff hike, industry warns

The national energy regulator of South Africa will decide on tariff hike after three weeks of public hearings.

As hearings into Eskom’s proposed tariff increase kicked off, the ferroalloy industry has warned it will not survive a double-digit increase in electricity prices. Eskom has applied for a 15% annual hike in the power price for the next three years but the national energy regulator of South Africa will only take a decision after three weeks of public hearings that began in Cape Town in January, according to a Business Day report.

“Should the 15% increase be affected then there will be little industry left to sell the electricity to and thousands of jobs linked to the ferroalloys industry will be at risk,” said Chabisi Motloung, chair of the Ferro Alloys Producers Association (FAPA).

“The producers, represented by FAPA, are significant power users as they typically run smelting operations and account for 10% of Eskom’s power consumption and about a tenth of its revenue. During he past few years electricity increases have already eroded industry margins significantly enough to trigger section 189 retrenchment processes across the industry,” said Motloung.

“The margins have depleted to a point where numerous smelters have been closed or sold to competition with some producers starting new smelters outside of South Africa, and closing existing operations in South Africa, due to the steep electricity price,” said Motloung.

“There is simply no more place for any further double-digit increases as industry has already gone through vigorous cost-cutting measures including retrenchments.”

FAPA said 18 530 direct jobs and 129 000 indirect jobs are at stake.

Rising electricity costs are taking their toll on the South African mining industry in general. Addressing the mining industry at the Joburg Mining Indaba in 2018, Minerals Council CEO Roger Baxter reportedly said electricity prices in South Africa have more than trebled and have become unaffordable for the industry.

However, Eskom remains in need of funds. CEO Phakamani Hadebe said recently that while a tariff increase may cause hardship, “Not being granted a suitable increase could lead to an unsustainable financial position for Eskom, which would put the country in an even [more dire] economic condition.”

Hadebe said current electricity tariffs are: “Insufficient to enable Eskom to cover the prudent and efficient costs, including the servicing of debt obligations, which as the IMF recently commented, will result in Eskom’s debt posing the single biggest fiscal risk factor to the country.”

FAPA noted that its members are vital Eskom customers because they consume base load power between 10pm and 6am and so dilute the cost of late-hour power generation for the utility.

“Eskom is too big to be allowed to collapse and industry is also too big to be allowed to collapse by a double-digit electricity price increase,” said Motloung.