A decision by energy regulator Nersa could come too late to save up to 3 000 jobs of employees and contractors in mainly vulnerable rural areas, as high electricity costs have rendered silicon metal production in South Africa uncompetitive since 2016.
At its electricity sub-committee meeting on May 3 Nersa decided to publish for public comment an application from Eskom to grant eMalahleni-based Silicon Smelters Ltd discounted short-term tariffs.
The application will however first be resubmitted to the next committee meeting on June 19. Thereafter Eskom will be given an opportunity to indicate which information it considers confidential and should be removed from the document before publication.
Realistically speaking that means a decision might only be forthcoming towards the latter part of the year.
Silicon Smelters’ CEO Nellis Bester told Moneyweb that the company, which produces silicon metal, ferrosilicon, inoculants, silca-fume and electrode paste for local and international customers cannot compete against producers on the international market for specifically silicon metal due to electricity costs that are three to five times higher.
Bester says the international silicon metal price is at its lowest point and manufacturers worldwide are under extreme pressure. In countries like Brazil, France, the US and Spain governments have come to the aid of the industry by lowering electricity costs to save the metallurgical industries.
“We have seen this coming as long as five years ago and made numerous presentations in the last years to Nersa, Eskom and other government institutions.”
He says Eskom currently has surplus generation capacity. In this environment it would be beneficial to both Eskom and the silicon smelters to lower the tariff it has to pay to a realistic level. That would result in maintaining Eskom’s demand from a customer who utilises electricity not only during normal working hours, but 24/7 and ensuring it consistent income to cover its overheads as well as baseload consumption during off-peak hours.
Bester says Silicon Smelters is well invested in South Africa with its own mines as well as timber farms situated in Limpopo, Mpumalanga and KwaZulu-Natal. Wood is processed by contractors in nearly all provinces in South Africa to charcoal for use in the company’s furnaces in Polokwane and eMalahleni.
Four of the six furnaces are used for silicon metal production. This comprises the full operations in Polokwane and around 25% of the operations in eMalahleni. For the past 11 months the majority of these furnaces have been stopped, but the company has not retrenched any staff to date. It has relied on cash resources that have now run out and retrenchments are on the cards as of end May.
Bester says Silicon Smelters has been engaging Eskom, Nersa and various other government entities in an effort to get temporary relief from high electricity costs. This was done on the basis of similar assistance given to its competitors in the international market by the authorities in their respective countries.
Eskom has agreed to discounted tariffs, but needs regulatory approval to implement it. It submitted an application to Nersa before December last year, he said.
Bester says: “Although the company remained positive over the period of 11 months until now, it became clear that silicon metal markets are not going to recover soon and regulatory approval seems uncertain from a time-frame perspective, despite our efforts to engage with all the regulatory institutions through urgent applications.
“This prolonged period of depletion of cash resources has become problematic for the company’s survival in RSA and in order to carry on with the remaining operations, the company has issued a section 189A notice to the unions at the Polokwane smelter in order to engage in a process of negotiations which will inevitably lead to unfortunate retrenchments, but the effect of the long stoppage period has already impacted on contractors in both the formal and informal sectors within South Africa.”
Bester says about 3 000 direct and indirect jobs could be affected, including contractors who ironically belong to the very vulnerable group of disadvantaged rural workers with little training and few alternatives that government is concerned about.
Moneyweb attended the Nersa ELS meetings where the application was discussed. In February the regulator members said it could not be approved, as there is no framework to assess such an application.
In May it was stated that the Department of Energy has since provided Nersa with a framework in terms of the Electricity Pricing Policy.
Regulator members stated that the Eskom application was well prepared and set out clearly the criteria Eskom applied in coming to an agreement with the company.
They were however critical of the report Nersa officials prepared for consideration of the matter. Members said the report had not set out a proper basis for the consideration of the application and failed to address regulatory matters that members raised at the meeting in February. “I am disappointed with Nersa management for the failure to carry out the instructions of the ELS given in February,” Nersa chair Jacob Modise said.
The meeting seemed uncertain about the way forward in the light of recent adverse court rulings on the basis of procedural flaws. Ultimately the committee recommended the publication of the application together with a discussion document for public consultation.
It also indicated that it would consult with National Treasury and the Department of Trade and Industry.
Nersa subsequently told Moneyweb that the matter will be presented at the Electricity Sub Committee meeting in June, presumably to consider an improved report, before the relevant documents will be published for public comment.
Oops! We could not locate your form.