JOHANNESBURG - MERAFE Resources, the South African ferrochrome producer whose revenue tanked during the year ended December 31, 2020 on lower production, said yesterday that it had approached power utility Eskom for a special power tariff.
Head of ferrochrome operations at Glencore, Japie Fullard, said the group had applied to Eskom for tariff relief provided for under the Negotiated Pricing Agreement (NPA) frameworks as pricing and the cost of electricity was central to securing the future of the ferrochrome industry.
“We have already lodged our NPA a couple of weeks ago. I must say we have had good feedback from Eskom. If we do not have special pricing, it will just add to our already distressed environment,” Fullard said.
Fullard also said that the group had discussions with the National Energy Regulator of South Africa (Nersa) and Eskom on how to lower cross subsidies given that energy intensive users were slapped with an additional cross subsidy of up to 14 percent. “We are also discussing with Nersa and Eskom on how to drop the cross subsidy. The cross subsidy is unduly penalising the energy incisive users which we believe is incorrect,” said Fullard.
The electricity tariff increased by 8.8 percent effective April 1, 2020, and for 2021, Nersa had agreed to increase the tariff by 15.6 percent, following Eskom’s high court victory, where it challenged the inclusion of the government bailout of R69 billion in the calculation determining tariff increases. Merafe said electricity supply and pricing remained key risks for its business and the broader ferro alloy sectors.
“These increases add to cost pressures of the Venture’s smelters and further reduce the cost competitiveness of the South African ferrochrome industry,” said Merafe.
Merafe, which has a 20.5 percent stake in the Glencore-Merafe Chrome Venture, the world’s biggest ferrochrome producer, was evaluating various opportunities to generate its own energy including on-site generation, which could be via carbon monoxide, Fullard said.
“We are also looking at investing at the Lions Smelter, on top of that we are evaluating a virtual power purchase agreement where we have got off site generation, this will happen via wind and solar. It will happen in the Northern Cape and be wheeled through the grid. We are at quite an advanced stage of evaluating whether this will make sense,” said Fullard.
It would need to be implemented to curb the spread of Covid-19, weaker demand and to a lesser extent electricity supply load curtailment. The group said it had concluded the Section 189 process resulting in 976 employees being retrenched at a cost of R474.2 million.
“The process was triggered by deteriorating operating and market conditions across the South African ferrochrome industry, including unsustainable electricity tariffs and interruptions, cross subsidies and real cost inflation,” said the group. Merafe’s share price closed 2.94 percent higher at R0.70 on the JSE yesterday.
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