The National Energy Regulator of South Africa (Nersa) has set aside May 25 for public hearings into Eskom’s application to amend negotiated pricing agreements (NPAs) with Samancor Chrome and the Glencore-Merafe Chrome Venture.

The adjudication process potentially opens the way for the implementation of the 62c/KWh tariff offer that Eskom has made to the two ferrochrome producers for a period of five years, possibly starting in June.

Nersa has published a consultation paper to guide those wanting to make written and/or oral submissions, with a May 22 deadline set for the submission of written comments and with a decision scheduled for May 29.

Initially, Nersa indicated that it would finalise its adjudication of the NPA amendments by the end of June, but there have been persistent calls for it to complete the process sooner.

In its application, Eskom has proposed that the revised tariff framework take effect from the first day of the calendar month following approval by Nersa and apply to six Samancor and four Glencore ferrochrome smelters.

Eskom made the 62c/kWh offer in early April, following negotiations on the terms and conditions associated with the amended NPAs.

Prior to the offer, the two ferrochrome producers indicated that they were planning to close smelters and retrench workers because of uncompetitive tariffs, especially when compared with tariffs in China, which is now a major source of demand for South African chrome ore.

Electricity accounts for about 40% of the overall production costs at the smelters and, as electricity tariffs surged over the past number of years, much of South Africa’s smelting capacity has closed, despite the country holding up to 80% of the world’s chrome ore reserves.

In January, Nersa approved an interim 87c/kWh tariff in favour of the companies after they invoked hardship clauses in their prevailing NPAs that were implemented at the start of 2024 at a tariff of 136c/kWh; already well below Eskom’s approved standard tariff of about 250c/kWh.

However, the ferrochrome smelters argued that a 62c/kWh tariff was needed for them to remain competitive.

Beyond Ferrochrome?
There is likely to be much interest in the deal, which Eskom describes as a load-retention and system-optimisation measure, as the State-owned company has indicated that it will consider amending NPAs with other electricity-intensive companies in future.

The consultation paper states that the deal will preserve some 12.8 TWh, the loss of which would have “irreversible revenue impacts for Eskom”.

Various companies have already called on Eskom to extend similar tariff offers to all ferroalloy smelters, while South32 and Eskom have jointly confirmed that they are in discussions on a long-term electricity supply solution for the Hillside aluminium smelter, in KwaZulu-Natal.

The hearings are also likely to attract stakeholders that are less supportive of providing industrial customers with relatively cheap electricity, especially while poor households and smaller businesses also face major affordability problems.

Assurances will also be sought from Eskom that neither the taxpayer nor other electricity customers will be worse off as a result of the deal. Previous NPAs have typically been paid for by standard-tariff customers, while taxpayers have also helped keep the utility afloat, with Eskom currently being supported by means of a R230-billion debt relief package extended to it by the National Treasury.

Eskom insists that the deal will be “ringfenced” and will not affect other customers, and has also argued that retaining large industrial customers through discounted tariffs will help it shore up flagging demand at a time when it has surplus capacity. This, partly owing to the recovery of its coal fleet and partly because demand has fallen as more businesses and households have installed solar and battery systems.

Board member Clive Le Roux argued recently that the State-owned company would be better off financially by selling electricity to the ferrochrome smelters at 62c/KWh: “The reason for that is, as the demand comes down, so the marginal cost of supplying energy into a lower-demand economy comes at a lower marginal price.”

In its application to Nersa, Eskom has reportedly set out seven core components of a differentiated, risk-adjusted contracting framework with the smelters, including: the price path, an economic hardship clause, yearly escalations linked to producer price inflation, a deferred revenue mechanism, an upside- sharing arrangement, a take-or-pay provision and security guarantees.

Nersa has called on stakeholders to comment on these components, alongside the appropriateness of the temporary load retention mechanism, and the five-year timeframe, which extends the initial NPAs by a further two years.

The regulator also wants stakeholders to comment of the anticipated socioeconomic impacts of the tariff deal.