KEY POINTS
- NERSA has approved and is monitoring reduced electricity tariffs for smelters under negotiated pricing agreements
- The relief aims to prevent job losses but significantly lowers industrial electricity costs from earlier proposed levels
- The regulator says the cost shortfall must not be passed on to consumers and will be strictly monitored through Eskom reporting requirements
The National Energy Regulator of South Africa NERSA, has confirmed it will closely monitor a new electricity relief arrangement granted to energy-intensive smelter operators, as scrutiny grows over its potential impact on consumers and Eskom’s finances.
The update comes after discussions on South Africa’s broader electricity pricing framework, including negotiated tariff adjustments for major industrial users of the national grid.
The regulator recently approved adjustments linked to long-term negotiated pricing agreements between power utility Eskom and major industrial customers, including ferrochrome producers such as Samancor and Glencore-linked operations.
The revised tariff structure significantly reduced electricity costs for affected smelters, bringing rates down from earlier proposals of around 87 cents per kilowatt hour to approximately 62 cents per kilowatt hour.
The relief is part of a broader framework aimed at preventing the closure of energy-intensive industries that contribute significantly to employment and industrial output.
Job protection and industrial survival at the centre of decision
According to NERSA, the negotiated pricing agreements were developed in response to severe financial strain within the smelting sector, where electricity accounts for up to 30–40% of production costs.
Without intervention, several operators had warned of potential shutdowns and job losses, including formal retrenchment processes under Section 189 of labour legislation.
Government and Eskom intervened to stabilise the sector, allowing reduced tariffs while negotiating how to manage the resulting revenue shortfall.
A key condition attached to the approval is that the financial gap created by discounted electricity rates for smelters must not be transferred to ordinary consumers.
NERSA executive manager for electricity regulation, Rhulani Mathebula, said the shortfall should be “ring-fenced” and absorbed by Eskom and government interventions rather than passed on through future tariff increases.
The regulator has also indicated that Eskom’s allowable revenue has already been set through to March 2028, limiting room for additional cost recovery from consumers in the current regulatory cycle.
NERSA confirmed it will require Eskom to submit quarterly reports detailing compliance with the negotiated agreements.
These reports will track whether smelters meet agreed electricity consumption levels and whether Eskom is adhering to the approved pricing and recovery conditions.
The regulator says this oversight is intended to ensure accountability and prevent unintended cost leakage into the broader electricity tariff system.
The negotiated pricing model is part of South Africa’s long-term industrial policy framework aimed at preserving jobs, maintaining production capacity, and avoiding deindustrialisation in key sectors.
However, it also raises concerns about Eskom’s financial sustainability, particularly regarding fixed cost recovery and the potential accumulation of revenue gaps.
NERSA maintains that it evaluates such agreements based on two key factors: the economic impact of potential industrial shutdowns and the financial viability of Eskom as the electricity supplier.
