Members of energy regulator Nersa sounded perplexed about Eskom’s application for an interim electricity tariff applicable to Samancor and Glencore-Merafe’s smelters that is meant as a bridging mechanism to an even lower tariff to be implemented on 1 March.
During a public hearing about the application on Tuesday (27 January), Eskom pleaded with the regulator to also approve an application to extend a waiver of the take-or-pay condition in its negotiated pricing agreements with the two companies, based on the hardship they are currently suffering.
Eskom asked for an extension of the waiver, which was initially approved in August for six months, so that it will be valid for another year.
The application for this extension was submitted to Nersa much later than the tariff application and Eskom pleaded with regulator members to consider both applications at the same time.
ALSO READ: Pressure mounts on Eskom pricing as more retrenchments loom
Jobs at stake
The applications are part of a bigger plan to rescue the struggling South African smelter industry and save hundreds of thousands of jobs, including those in the upstream and downstream value chains.
Several smelters have already issued retrenchment notices to staff.
The Ferro Alloy Producers Association (Fapa) supported the Eskom application.
However, Fapa chair Nellis Bester stressed that other beneficiation industries face similar hardships and have been forced to operate intermittently or not at all in the past couple of years due to being uncompetitive.
The organisation requested Nersa to allow the interim tariff relief for the two companies and to also roll it out to the related manganese, silicon and vanadium smelting industries that are currently in operation.
ALSO READ: Eskom signs deal aimed at saving SA’s shrinking smelter sector
Other users won’t be required to ‘plug the hole’
At the hearing Eskom repeated its earlier assurance that other consumers, including households, will not be expected to pay more and subsidise the smelters. How that hole will be plugged, is not yet clear.
According to Electricity and Energy Minister Kgosientsho Ramokgopa it amounts to R5.2 billion for the interim solution the current application relates to.
News24 quoted several industry sources that put it as high as R9.6 billion over a year.
This is one of the questions that regulator members also grappled with. They asked repeatedly what the impact of such a decision would be on Eskom’s revenue.
Eskom representative Gugulethu Dumakude explained that “several processes are taking place in parallel” with the application before Nersa and “a lot of work was done” – even over Christmas and into January.
She said the Department of Electricity and Energy is working on the issue and will come back with an answer.
ALSO READ: Interim smelter plan to cost government R5.2bn
Special tariff won’t be enough anyway?
Regulator members point out there have been claims that the 87c/kWh Eskom is applying for as a tariff for the two companies is still too high for the smelters – which maintain they will only be able to operate sustainably at a tariff of 62c/kWh.
Eskom’s Dumakude confirmed that negotiations are still ongoing and the gap between what Eskom offered and what the smelters need has not yet been bridged.
She again referred to the ongoing work by the Department of Electricity and Energy and other state players.
Nersa is a creature of statute and can only lawfully do what it is authorised by legislation to do.
It must balance the interests of all consumers and suppliers like Eskom, and ensure the sustainability of the industry.
The regulator may find it difficult to approve the application without clear information about the source of funding for the discounts and the impact of the discounted tariffs on Eskom’s finances.
In considering tariffs, Nersa acts in terms of approved methodologies and frameworks – and Nomfundo Maseti, until recently Nersa’s full-time member for electricity, asked whether the application should be considered within the framework of the negotiated pricing agreements that allow discounted tariffs for struggling intensive electricity users under specific conditions.
This includes that Eskom must at least cover its cost, which may not be the case at the tariff level that Eskom is now applying for.
Tengo Tengela expressed the trade union federation Cosatu’s support for the application but asked Nersa to impose a condition that, if granted, the relief be linked to a moratorium on retrenchments.
This article was republished from Moneyweb. Read the original here.
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