Electricity hikes raise fears of mass retrenchments in mining, metals

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JEREMY MAGGS: Now this is a worrying turn of events. Energy-dependent industries are sounding the alarm – and sounding it loudly. Soaring electricity prices are forcing operations to consider shrinking, shuttering, or at least face mass retrenchments. From a 23% drop in energy use to hundreds of job losses looming in regional smelters, the pain is real.

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So, let’s find out what the exact situation is, and someone who is as close to it as anyone is Fanele Mondi, who’s chief executive officer of the Energy Intensive Users Group. Fanele, a very warm welcome to you. Maybe before we talk about the issue, just give us a sense of the Energy Intensive Users Group. Who do you represent?

FANELE MONDI: Good afternoon, Jeremy. Thanks for giving us an opportunity. We represent large power consumers mainly in the mining and industry space, but we do have others in the lower end in the manufacturing side and the data centres.

We want to believe that the constituency overall that we represent is anything between 35% and 40% of the consumers of electricity in South Africa. Inasmuch as our members are not necessarily all 30% to 40% consumers, but more than half of that are directly our members.

JEREMY MAGGS: All of these organisations, of course, make a significant contribution to the economy. So, let’s get to the issue now, if we can. How exactly are rising electricity costs impacting the operations of your members?

FANELE MONDI: These have been really brutal, Jeremy. As you know, if you look, just perusing through the Eskom annual report, the increase of electricity from 2008 to 2024 is almost eightfold. We were having an average price increase of 20 cents or 19.09 cents, to be specific, per kilowatt hour in 2008. Now, in the 2024 financial year, we are sitting at 165 cents. So this is really a huge increase, which makes it really difficult for any economy to absorb.

Also, if you check the pace at which we have been increasing, it just makes it difficult to adjust. Some of these companies and their consumption ranges, specifically in the ferroalloy sector, have around 40% to 60% cost of electricity in their total production. So, these increases are really driving them out of business.

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Speaking about ferroalloys, since around 2014 until now, we’ve lost about ten of those. As a result, we are only left with four and all of them are taking a very serious challenge with the costs. They have tried the NPAs, which are the Negotiated Pricing Agreements, a special pricing agreement with Eskom. But even so, they are still under a lot of pressure in terms of their operations.

JEREMY MAGGS: Fanele, as these companies take on that pressure, I would imagine the human cost for communities around these giant operations is enormous.

FANELE MONDI: It definitely is, because it’s not only limited to their direct employees; it also covers the indirect employees. And, like you are correctly saying, the communities around them also make some kind of income based on those operations. So the situation is really bad.

JEREMY MAGGS: So, it’s fair to say then that power prices are probably a bigger threat to profitability than any kind of market swing that we are seeing in commodities.

FANELE MONDI: I wouldn’t know exactly in terms of that. I’m not an economist by training, but certainly it is a significant contributor, there is no doubt about it.

JEREMY MAGGS: With talk of retrenchment, then, is there a sense that some of the companies that you represent are maybe exiting completely, considering exiting completely, or at the very least, surrendering their operating licences?

FANELE MONDI: There is that talk. I’m not so close in terms of that, but certainly when we look broadly, these are some of the considerations. Some may consider closing down either part of the operations or, like you’re saying, the whole operations. Because, like I’m saying, in the ferroalloy space, already ten [smelters] have disappeared in the past ten years. There is no guarantee that the four remaining will be able to continue. But I must also add that all efforts are being made to do the best that can be done to save the situation.

JEREMY MAGGS: Part of those efforts, I would imagine, would be continual engagement either with Eskom or the regulator. Is that at any point producing any concrete solutions? Are you holding out any hope there?

FANELE MONDI: It’s a very difficult one, Jeremy. It’s not only Eskom and Nersa [National Energy Regulator of South Africa] but they also involve policymakers, the government themselves. But I am not directly exposed to that, so I will not be able to comment. But yes, the engagements are ongoing.

JEREMY MAGGS: What kind of policy change would the Energy Intensive Users Group be advocating for?

FANELE MONDI: At this point, we believe that one of the things we need to consider is a competitive tariff, and that will make it possible for us to compete with other competitors in the global space. This is something we are discussing with Eskom to say, how do we make sure that we pay our dues in terms of our costs to Eskom, but also get some kind of leverage in terms of us maintaining our operations. So at this point, we have not firmed up how we’re going to look at that.

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But the other view, which is out there, is the need for a more clearly defined subsidy framework. Because, as you may know, currently some of these large operations and large power users are paying a significant portion of their tariff towards subsidies to try to improve the situation around accessibility and affordability for low-income households. But this is proving to be a bit of a burden as we speak. So those are some of the issues we think we need to talk about.

JEREMY MAGGS: Ideally, and without giving away competitive advantage, what would a better tariff look like for your users?

FANELE MONDI: No, at this stage, Jeremy, I really don’t have an answer. As I was saying, we are still applying our minds, we’re still engaging the relevant stakeholders. As an association, because of Competition Act purposes, we do not get into that detail in terms of the actual prices.

JEREMY MAGGS: But let me come at it from a different angle. I understand that you’re engaging at the moment, but time is of the essence here. You need a solution sooner rather than later. If you don’t, what’s the broader consequence going to be for that users’ group?

FANELE MONDI: The reality is that some of the members may go under if there is no solution that is found, that’s how bad it is.

JEREMY MAGGS: It’s a very troubling situation. Fanele Mondi, thank you very much indeed for talking to me, the chief executive officer of the Energy Intensive Users Group. I do appreciate your time.

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