JOHANNESBURG - Nersa said the pricing agreement was confidential as it was a contractual agreement between Eskom and Silicon Smelters' plants in Polokwane and eMalahleni. Photo: Antoine de Ras/African News Agency/ANA

Nersa spokesman Charles Hlebela said the negotiated price was confidential “as it is a contractual agreement between Eskom and Silicon Smelters. It is a special pricing agreement that has been negotiated and agreed between Eskom and Silicon Smelters. It is also commercially sensitive, (because) once other producers know the input electricity price they can work out their production cost.”

Nersa last week published the Reasons for Decision document in which it gave details about its decision. The regulator said the agreement would run from July, 2018 to June, 2020.

Terms

Nersa, however, did not disclose the average tariff that Silicon Smelters would pay under the new agreement. But it said the undisclosed tariff would be adjusted by the Production Price Index (PPI). The regulator said, in terms of the agreement, Silicon Smelters should have appropriately 80percent of its applicable load interruptible by the system operator on week days.

In December last year, Eskom submitted an application for the special pricing agreement to incentivise Silicon Smelters, a subsidiary of global silicon metal and silicon-based alloys producer Ferroglobe to reinstate production at the two plants for at least two years. Nersa approved the agreement in August.

Hlebela said revealing the negotiated price might undermine future negotiations between Eskom and other customers. Eskom previously confirmed that more companies had approached it for the negotiated price agreements, but declined to identify the firms as their applications would still have to go through Nersa.

Nersa said, in addition to reinstating the production of silicon production at the two plants, the incentive package would substantially increase Eskom’s sales and revenue.

The company stopped production at the plants, citing a combination of weak demand, uncompetitive production costs and high electricity costs.

“Due to the hardships experienced, Silicon Smelters resorted to costs-containment measures such as retrenchments, less infrastructure development and termination of contracts with suppliers,” Nersa said.

Nersa said it had evaluated the application for a special pricing agreement on the basis of an interim framework that the Department of Energy developed after Silicon Smelters submitted the application to Nersa. The department developed the framework specifically for Silicon Smelters.

Energy Minister David Mahlobo approved the framework in March.

Pricing

Nersa said the Department of Energy would embark on a wider pricing framework for other sectors in a similar situation.

Eskom recently confirmed that it had received a number of applications for special pricing agreements. But the power utility has declined to name the companies that have submitted the applications, saying these would still need to go through Nersa.

In the Reasons for Decision document, Nersa said, while electricity prices, other factors such as exchange rates, production costs and the efficient running of the production facilities had to be considered.

The Energy Intensive Users Group of Southern Africa (EIUG) supported the implementation of short-term incentive tariffs to ease the burden on struggling industrial electricity users.

“The EIUG supports (negotiated price agreements) for any and all entities that qualify under the framework as an interim two-year measure to increase Eskom’s sales,” it said.

- BUSINESS REPORT