MINISTER of Mineral and Petroleum Resources Gwede Mantashe on Thursday raised the possibility of negotiating electricity tariffs linked to commodity prices in an effort to restart ferromanganese and ferrochrome smelters that had been shut down because of South Africa’s soaring power costs.
Speaking at the Joburg Indaba mining conference being held in Sandton, Mantashe said discussions had started with mining companies on beneficiation and commented “we have had various first discussions but few chrome and manganese companies are keen to work with us on that.
“We said let’s look into another formula called commodity price-linked electricity tariffs as a possibility. When the price is high you pay high electricity tariffs. When the price is low you pay low electricity tariffs. It sustains the industry and those high and low prices cancel each other out over a long period of time.
“We said let’s talk about that and also let’s even talk about a tax holiday for beneficiation. Think it through. Bring a proposal that is sustainable and we will listen to you.”
Mantashe added: “I have already started (talking) to the Minister of Electricity. He is favourable to that. It is essential that the industry participate fully in this discussion.
“We are convinced that there can be no industry that works without partnering between the Government and the private sector. It is not about demands on one another. It is about partnering to get the best results.”
Despite these positive comments, Mantashe also raised the prospect of a ‘big stick’ in the form of export taxes on the unbeneficiated raw ores being exported which he described as “exporting jobs and exporting profits”.
He commented: “If you export anyway you must also expect that we will tax you. We will give you export tax. I always tell people that export tax is a blunt tool but sometimes, when people just want to kill the economy, then use the blunt tool. It is the last option we will be looking at”.
Asked about the impact of the constant increases in Eskom power tariffs which would deter revival of the closed furnaces Mantashe replied: “My own view is that any increase of a price that is more than CPI (consumer price index) in this day and age is criminal”.
He told the mining industry to get involved in the public consultation process over the latest electricity tariff hike of 36% proposed by Eskom and “influence that 36% down”.
The last time the South African government agreed to a commodity-price linked electricity tariff was in the early 2000’s with Gencor over aluminium for the development of the Hillside Aluminium smelter in Richards Bay.
That agreement was reached at a time when South Africa had a large surplus of power generation capacity and was looking to encourage the development of industries that would use it.
The scheme subsequently ran into vicious political opposition as being overly one-sided in Gencor’s favour as the Government changed its tune when the country’s power crunch hit from about 2008 and the aluminium price remained depressed for an extended period meaning the smelter paid low tariffs.
