Industrial users warn high Eskom tariffs threaten recovery

In SA’s industrial heartlands, furnaces once humming with molten metal now lie mostly dark, a stark reminder that Eskom’s profitability alone cannot keep the lights on for the country’s energy-intensive industries.

Eskom’s return to profitability has been welcomed by SA’s largest electricity users, but business leaders warn that unsustainably high tariffs will continue to threaten industrial survival — and, by extension, Eskom’s own future.

For energy-intensive sectors such as ferroalloys, mining, steel, and chemicals, electricity costs are the largest component of production expenses, often accounting for 40-60% of total costs.

Years of steep tariff increases — reportedly more than 800% since 2007 — have forced many smelters and heavy industrial facilities to cut production or shut down entirely, contributing to SA’s broader deindustrialisation trend.

Between 2008 and 2024, industrial and mining electricity sales volumes declined by 23%, while customer numbers shrank by 17%, reflecting a contraction in local industrial activity.

“The biggest portion of the local beneficiation sector has shut down since the winter period purely due to the unaffordability of the cost of tariffs,” said Nellis Bester, chair of the Ferroalloys Producers Association.

The association’s membership includes major players such as Samancor Chrome, Glencore, Richards Bay Minerals, Assmang, South32, Silicon Smelters, Transalloys and SA Calcium Carbide. These companies are integral to the beneficiation of SA’s ores and minerals into ferroalloys, which are crucial for the country’s steel and stainless steel industries.

Competitive tariffs

In this context, Bester said Eskom’s recent full-year results — showing improved plant availability and a return to profitability — are a positive signal but stressed that the sector remains vulnerable without competitively priced electricity. Of more than 80 ferroalloy furnaces nationwide, only eight are operational.

“What is needed is a competitive tariff structure. There’s no alternative. You cannot replace your cost of production with anything else,” Bester said, stressing the critical importance of electricity pricing for the survival of smelters that produce chromium, silicon and manganese alloys.

“These smelters feed SA’s steel and stainless steel industries, which, in turn, support local manufacturing. The interdependency between these alloys and steel production is crucial and must be maintained.”

A call for special industrial tariffs

To safeguard the industrial base and secure Eskom’s long-term revenue, industry leaders are calling for a fundamental policy change. Bester urged the introduction of a special industrial tariff policy to reset the cost of electricity. He stressed that protecting this sector is essential for the entire downstream manufacturing ecosystem, which supports a vast a number of jobs.

The Energy Intensive Users Group of Southern Africa (EIUG) welcomed Eskom’s reduction in load-shedding and positive financial performance but emphasised that uncertain electricity prices continue to undermine planning and investment for the industries it represents, which collectively consume over 40% of the country’s electricity.

“Although Eskom’s financial performance is improving, it has not led to a decrease in electricity price increases, which are crucial for our members’ sustainability,” said EIUG CEO Fanele Mondi.

EIUG’s membership spans several strategic sectors that are vital to SA’s industrial and energy landscape, including mining and mineral extraction, metal processing and refining, steel and aluminium manufacturing, and glass and non-metallic mineral products. Notable members include Sasol, Exxaro Resources, ArcelorMittal SA and Impala Platinum, representing a significant portion of the country’s energy-intensive industries.

Inflation-linked

Both Bester and Mondi stressed the importance of price predictability. While welcoming the shift towards single-digit tariff increases, they want greater certainty, with future hikes linked to inflation.

By safeguarding this small but energy-intensive industry, we are also supporting steel, stainless steel, downstream manufacturing and hundreds of thousands of jobs.

—  Nellis Bester, chair of the Ferroalloys Producers Association

The EIUG urged a comprehensive review of the current Electricity Pricing Policy (EPP) and the multiyear price determination methodology to ensure transparency and stability for investment.

The organisations pointed to rising operational costs, declining sales volumes and municipal arrears as key challenges. Municipal debt, projected to grow from R94.6bn in 2025 to R135bn in 2026, threatens Eskom’s revenue base, which in turn affects tariff stability and industrial competitiveness.

“We are advocating for affordable tariffs — inflation-linked — to enhance our competitiveness in global and domestic markets,” said Mondi. “The deindustrialisation we’ve seen negatively impacts our members, the economy, job creation and even Eskom.”

Local challenges

Bester highlighted that global market pressures exacerbate local challenges. SA ferroalloy producers compete with manufacturers in China and Europe, where electricity is cheaper and operational costs are lower.

Carbon taxes and trade restrictions, such as the EU’s carbon border mechanism, add to the financial burdens.

“We need to protect the local beneficiation sector. By safeguarding this small but energy-intensive industry, we are also supporting steel, stainless steel, downstream manufacturing and hundreds of thousands of jobs,” Bester said.

Both the Ferroalloys Producers Association and EIUG acknowledge Eskom’s progress in reducing load-shedding, improving plant availability and achieving profitability. However, they stress that these operational gains will not secure industrial recovery unless electricity pricing is predictable, affordable, and linked to economic and production realities.

“With the improvements we’re seeing at Eskom, I think we’re on the right track. I’m optimistic. We must build on sustainable plans and work together to make them even better,” Bester said.

tsobol@businesslive.co.za