STEEL producer ArcelorMittal South Africa on Tuesday warned of further plant closures and job losses if the National Energy Regulator of South Africa (Nersa) approved Eskom’s application for an increase of 16% a year over five years in electricity tariffs.
ArcelorMittal joined forces with the Cape Town city council, the Institute of Municipal Finance Officers, the Congress of South African Trade Unions (Cosatu), the National Union of Mineworkers and other civil society organisations to oppose Eskom’s application in the first of a series of provincial hearings that Nersa will hold over the next few weeks.
Dennis Britz, an energy specialist appearing for ArcelorMittal, told the Nersa commissioners that their decision would be "the key to South Africa’s economy and will affect the future of South Africa’s ability to produce, beneficiate and expand economically with an employed population".
Electricity prices had become unaffordable, he said, and was one of the factors that contributed to the closure of one of ArcelorMittal’s furnaces in Vanderbijlpark.
If Eskom’s application was approved by Nersa, ArcelorMittal would have to reconsider its footprint in South Africa to maintain its competitiveness, Mr Britz said, warning that other companies would be affected too.
He noted that to offset the proposed tariff increase over the next five years, ArcelorMittal — one of Eskom’s top 10 customers, having contributed 2.5% to the utility’s sales in 2011-12 — would have to achieve energy efficiencies of 14.3% a year, which was "unachievable" without investing large amounts of capital.
Questions were asked at the hearing about Eskom’s methodology in providing for a return on equity and for depreciation of assets, which Cosatu provincial organiser Mike Louw said represented 34% of the proposed price increase.
Nersa commissioners also questioned the extent of shareholder (government) support for Eskom, to which Eskom CEO Brian Dames replied that it was limited to a R60bn subordinated loan that had been fully drawn down and a guarantee of R350bn. He did not expect any further support in future.
Eskom financial director Paul Flaherty emphasised the importance of the utility maintaining its investment-grade rating, which would be difficult to achieve without the required revenue.
Cape Town city council director of electricity Les Rencontre said the price increases might have to be introduced over a longer period to lessen their impact on consumers and the economy.