Smelter’s future has a domino effect on all

The future viability of the South32 Hillside Smelter is again at risk as consultations are under way with regard to Eskom’s electricity price and the special negotiated deal the smelter has with the National Energy Regulator of South Africa (Nersa).

From its inception, the smelter has enjoyed a discounted negotiated pricing agreement (NPA) with Eskom, with the price it pays for electricity linked to the market price of aluminium.

In other words, when the market is good, Hillside pays more and when it slumps, they pay less.

That agreement is currently under review as Nersa calls for comment on a proposed further 10-year NPA between Nersa and South32 – Eskom’s biggest client.

Given Eskom’s current precarious financial position, linked to alleged mass corruption that is being heard before the state capture commission, the tariff level decided for the new NPA might prove to sound the death knell for South32.

Nersa has called for written comments from stakeholders to be submitted before Wednesday, 26 May, and will make its decision known by the end of June.

We who live in this region are all stakeholders, given the possible knock-on effect.

Not a single one of us will not be directly or indirectly affected by the loss of such a huge contributor to the region’s economy.

We faced a similar situation eight years ago when, just before Christmas in 2013, employees and community stakeholders were informed that, due to increased production costs and the dwindling aluminium price, the smelter might be forced to close.

It was costing more to produce the aluminium than what was being earned through sales – an industry situation happening worldwide and now probably exacerbated by the effects of the Covid-19 pandemic.

When it comes to production costs, the highest of these is the tremendous amount of electricity that is needed to produce aluminium.

Should the energy provider up its cost of electricity – by far the smelter’s largest input cost (up to 35%) – the smelter will face closure and with it will come massive job losses in the area.

Should Hillside be forced to close, other support industries and dependent businesses will fall like dominoes, not to mention those who benefit from the company’s massive CSI programmes.

We urge every organisation and individual to lobby Nersa with utmost urgency.