In a significant development for the South African mining and metallurgical industry, the National Energy Regulator of South Africa (“NERSA”) has approved six-year Negotiated Pricing Agreements (“NPAs”) that promise tariff reductions for key ferrochrome and smelter operations across the country. This decision has far-reaching implications for both the sustainability of these industries and the nation’s energy landscape.
On 6 November 2023, NERSA granted approval for NPAs concerning various ferrochrome and smelter operations within the Republic of South Africa. NERSA’s announcement confirmed the approval of NPAs for several facilities operated by Glencore-Merafe Chrome Venture and Samancor Chrome, two prominent players in South Africa’s ferrochrome sector. Specifically, NPAs were granted for four of Glencore-Merafe Chrome Venture’s ferrochrome operations located in the provinces of Mpumalanga, Limpopo, and North West, as well as six smelter operations run by Samancor Chrome in the same regions. The NPAs, set to last for six years, signify a vital step in the effort to support these key sectors in the face of economic and operational challenges.
Eskom, South Africa’s state-owned electricity supplier, submitted the applications for NPAs on 9 May 2023, following the interim long-term NPA framework approved by Mineral Resources and Energy Minister Gwede Mantashe in August 2020. The framework primarily targets large power consumers with high electricity consumption, requiring minimum thresholds of 80 GWh and/or load factors exceeding 70%. In such industries where electricity constitutes a significant cost component, these NPAs offer a lifeline by providing discounted tariffs.
The primary goal of this interim long-term NPA framework is to incentivise the continued operation of strategic sectors that would otherwise face the prospect of severe curtailment or shutdown without discounted electricity rates. Historically, tariffs for these industries have been indexed to the market price of the commodities they produce. However, it is worth noting that it remains unclear whether this pricing model applies to the Glencore-Merafe and Samancor Chrome NPAs.
The implications of these NPAs are significant. They are expected to promote the sustainability of ferrochrome and smelter operations, safeguarding jobs and ensuring a consistent supply of vital materials for various industrial applications.
Eskom will administer separate six-year NPAs for Glencore-Merafe Chrome Venture’s key facilities, including Boshoek, Wonderkop, Lion, and Lydenburg operations. Meanwhile, the Samancor Chrome operations collectively account for a substantial capacity of 1,363 MVA and are projected to contribute approximately 7.6 TWh of baseload sales annually. These operations include Ferrometals, Middelburg Ferrochrome, Tubatse Ferrochrome, Tubatse Alloy, TC Smelters, and Dikwena Chrome.
One notable aspect that has yet to be clarified is whether these agreements include provisions allowing Eskom to interrupt the electricity supply, a feature present in some other NPAs. Given Eskom’s steeply rising tariffs over the past years, it is evident that these NPAs play a pivotal role in supporting larger consumers. To qualify for an NPA, these consumers need to demonstrate their inability to maintain operations under the standard applicable tariff.
The approval of NPAs for ferrochrome and smelter operations in South Africa signifies a significant step in securing the sustainability of these vital industries. The tariff reductions provided by these NPAs will not only safeguard jobs and operations but also contribute to the nation’s economic stability and the continuous supply of essential materials. As South Africa navigates the challenges of the modern energy landscape, these NPAs are a critical lifeline for its mineral and metallurgical sectors.
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