The High Court in South Africa has reviewed and set aside a decision by the National Energy Regulator of South Africa (Nersa) to deduct equity injection from Eskom’s allowable revenue. The court has directed Nersa to add ZAR23Bn (US$2.1Bn) to the allowable revenue for 2021/22 FY, increasing the set standard tariff from ZARc116.72/kwh to ZARc128.24/kwh, as well as adding a second ZAR23Bn (US$2.1Bn) to allowable revenue over the following two financial years.
Eskom, South Africa’s power utility, has long battled out increases to its allowable revenue with Nersa to recover costs and service a surmounting debt. In October 2019, Nersa initially approved annual tariff increases of 9.41%, 8.1% and 5.22% respectively over three financial years from 2019/2020 onwards, below the 15%py increases applied for by Eskom. The court ruling will see standard tariff increases surge at around the 15% mark in April 2021.
This increase will undoubtedly put further pressure on South Africa’s energy intensive ferrochrome industry, which is currently operating far below capacity in 2020. While South African plants idled during the March-April COVID-19 lockdowns have subsequently been allowed to return to business, not all operations have reopened as weakening markets, coupled with decreasing cost competitiveness, underpin the industry.
Prior to the outbreak of COVID-19, South Africa’s two leading ferrochrome producers (also the leading producers globally up until 2019) initiated procedures to suspend certain plants, citing rising electricity tariffs as one of the key headwinds to sustain the domestic industry. With low ferrochrome prices expected to continue in August’s tender announcements in China, South African capacity utilisation is likely to remain low and South African annual output may fall back to levels last seen in the 1990s.
Roskill published its Chromium: Outlook to 2030, 16th Edition report in June 2020. The report includes a detailed analysis of supply, demand, prices, costs and forecasts for ferrochrome. It also looks at the impacts of COVID-19 and how chromite ore trends are affecting the ferrochrome industry. For more information or to subscribe, click here.