Eskom’s Discounted Power Deal for Smelters Sparks Subsidy Debate

South Africa’s energy regulator has approved a heavily discounted electricity tariff for two of Eskom’s largest industrial customers, a move aimed at protecting thousands of jobs but one that is already raising concerns over who will ultimately bear the cost.

The National Energy Regulator of South Africa (Nersa) approved a Negotiated Pricing Agreement (NPA) that allows ferrochrome producers Glencore Merafe and Samancor Chrome to purchase electricity at 62 cents per kilowatt-hour (kWh), around 83 per cent lower than the tariffs paid by ordinary households.

The preferential pricing arrangement is expected to help revive idled smelting operations and safeguard more than 3,700 direct jobs, alongside over 20,000 indirect jobs across South Africa’s mining value chain.

The agreement comes after the companies argued that soaring electricity costs had eroded their competitiveness against global rivals, particularly in China, where industrial power tariffs have declined significantly.

Glencore Alloys Chief Executive Officer, Japie Fullard, said the reduced tariff would enable the company to restart 10 smelter furnaces, while Samancor Chrome could bring another 24 furnaces back into operation if it adopts the agreement.

Together, the two companies consume about 13 terawatt-hours of electricity annually, representing roughly seven per cent of Eskom’s total energy demand and an average baseload of about 1,500 megawatts.

While Eskom currently appears to have sufficient generation capacity to accommodate the additional demand, analysts have questioned the financial sustainability of selling electricity below its average production cost.

Energy analyst, Chris Yelland, noted that Eskom’s average cost of generating electricity stood at about 147 cents per kWh in the 2024/25 financial year, prompting concerns over how the discounted tariff would be financed.

He questioned whether the arrangement would ultimately shift costs to taxpayers or other electricity consumers, despite assurances that the pricing agreement would be ring-fenced.

Under the approved framework, any revenue shortfall resulting from the agreement cannot be recovered through Eskom’s Regulatory Clearing Account, a mechanism normally used to seek tariff adjustments based on past financial performance.

Fullard, however, insisted that the deal would not lead to higher electricity prices for households or businesses, arguing that Eskom would benefit from selling power that would otherwise remain unused.

According to him, the agreement could generate about R6.2 billion in additional electricity sales while supporting the recovery of South Africa’s ferrochrome industry.

He cautioned, however, that the discounted tariff alone would not guarantee the long-term viability of smelters, stressing that operators must continue investing in more efficient technologies to remain globally competitive.