Glencore’s South African ferrochrome unit has warned it may pull out of negotiations with the government over a discounted electricity deal, with its chief executive saying the conditions attached to the offer are simply not acceptable in their current form.
The standoff puts thousands of jobs at risk and threatens to deepen a crisis that has already seen most of South Africa’s smelting industry go dark. Of the 66 smelters that once operated in the country, only 11 remain open — the rest having shut down under the weight of electricity costs that have risen tenfold since 2008, compounded by growing competition from Chinese producers.
In February, state power supplier Eskom offered the country’s two biggest ferrochrome companies — Glencore’s unit and Samancor Chrome — a heavily discounted electricity tariff, cutting the rate from 1.36 rand to 0.62 rand per kilowatt hour. The offer was designed to keep the smelters viable and protect thousands of jobs. But both companies have pushed back on conditions attached to the deal that have not been made public, saying they pose a threat to the industry’s long-term survival.
Speaking at a mining conference in Johannesburg on Thursday, Glencore Ferroalloys CEO Japie Fullard was unambiguous. “The terms and conditions, the way that it is now, I unfortunately will not be in a position to sign,” he said. “If they do not come to the party, we are going to walk away from the 62 cents deal.” Fullard said representatives of the ferrochrome firms were meeting with government officials late on Thursday, and that up to 1,500 jobs would be cut if no agreement is reached before the end of the month. Glencore had already deferred lay-off procedures until 31 March to allow negotiations to continue.
Samancor, for its part, has already said it is pressing ahead with plans to cut workers — a sign that even the discounted tariff on offer hasn’t been enough to secure confidence in the industry’s future on current terms.
The government is under real pressure to find a resolution. The smelters are major customers of Eskom and significant employers in a country where unemployment is persistently high. But with both major ferrochrome producers signalling serious reservations about the deal as structured, Thursday evening’s talks carry considerable weight.
