South Africa Plans to Offer an 87 Cents/kWh Electricity Price Discount for Ferrochrome Smelting

South Africa's Eskom applied to the energy regulator for approval of an interim electricity tariff, offering an 87 cents/kWh preferential rate for Samancor Chrome and the Glencore-Merafe Chrome joint venture. This is a temporary measure aimed at maintaining smelter operations, while parties continue to negotiate a longer-term solution with the goal of further reducing the tariff to 62 cents/kWh.

The utility also requested the National Energy Regulator of South Africa to extend the "take-or-pay" obligation exemption for the two enterprises by another 12 months. The exemption pertains to obligations under pricing agreements negotiated with Eskom that took effect in 2024. These agreements stipulate that ferrochrome producers must meet at least 70% of their contracted electricity consumption; however, due to the industry's loss of competitiveness and multiple smelter shutdowns, this condition can no longer be fulfilled. In August last year, Samancor Chrome and the Glencore-Merafe Chrome JV cited operational difficulties arising from these clauses, prompting the regulator to approve a six-month exemption, which is set to expire at the end of January.

Eskom's distribution unit head, Gugulethu Dumakude, acknowledged that the interim tariff of 87 cents/kWh is still not enough to restore ferrochrome producers to the production levels envisaged in the pricing agreements, but it would help them slightly increase electricity consumption from current levels. She added that this interim tariff, combined with the "take-or-pay" exemption, would also provide Eskom and the Department of Mineral Resources and Energy with buffer space to finalise a more sustainable electricity pricing solution with the ferrochrome industry.

Neels Best, President of the South African Ferroalloy Producers Association, confirmed that the industry needs a tariff of 62 cents/kWh to resume production and avoid the Section 189 retrenchment processes already initiated by several ferroalloy enterprises, including those outside the ferrochrome sector. Therefore, he also argued that the final negotiated solution should not be limited to the ferrochrome industry but should extend to manganese, silicon, and vanadium smelters—all of which are facing operational difficulties due to "escalating electricity prices."

Best pointed out that only 4 of South Africa's 48 electric furnace ferrochrome smelters are currently operating; likewise, only 4 of the 19 smelters in other ferroalloy sectors remain in production. He stated, "Today, electricity costs account for 40% to 60% of total production costs in the ferroalloy industry. To sustain the sector, it is crucial to establish an internationally competitive electricity tariff." He also warned that without an electricity pricing policy that supports local mineral beneficiation, South Africa faces widespread deindustrialization and job losses.

Theo Morkel, Managing Director of South Africa's Transalloys, further corroborated this view, sharing cost comparison data showing that even under the company's pricing agreement with Eskom, the electricity cost for producing SiMn is as high as $634/mt, far exceeding the international benchmark—where power costs for SiMn production range from as low as $147/mt to a maximum of $338/mt. Thus, Morkel said that while he supports immediately implementing the interim tariff relief for Samancor Chrome and the Glencore-Merafe Chrome JV, the rest of South Africa's ferroalloy industry equally urgently requires similar relief measures, as these sectors also face plant closures and job losses.

Tengo Tengela, Trade and Industry Coordinator of the South African Federation of Trade Unions, also expressed support for the electricity tariff relief application, warning that if smelters are forced to shut down, around 300,000 direct and indirect jobs would be at risk. However, he called on the National Energy Regulator of South Africa to approve the application on the condition that the relevant enterprises suspend further retrenchment actions.
The South African National Energy Regulator has not yet announced a decision timetable for this application, but Eskom has stated that the relevant approval must be issued by the end of February at the latest.