600 Transalloys jobs at risk if power price cut isn't announced
Transalloys chief executive Konstantin Sadovnik has warned that if the smelting sector is not granted an electricity tariff cut in the upcoming National Budget Speech, the silicomanganese producer may be forced to retrench its 600 employees.
Image credit: Transalloys
Sadovnik said he is not optimistic that the Minister of Finance, Enoch Godongwana, will announce any meaningful electricity tariff relief for the wider smelting sector.
Electricity remains the company’s single largest input cost and the decisive factor in determining global competitiveness in very competitive ferroalloy markets, he said.
Transalloys is the last remaining manganese smelter in South Africa and contributes around R2.5bn annually to the eMalahleni economy through the procurement of local goods and services.
Wiping out R5bn asset
“Beyond the immediate job losses and downstream economic impact, shutting down the plant would wipe out a R5bn strategic asset,” Sadovnik said.
“It would represent an irreversible loss of manganese beneficiation capacity in a country that holds roughly 80% of the world’s known manganese resources and severely damage (the) investment climate in South Africa.”
While ferrochrome smelting has received tariff relief, silicomanganese smelting is approximately 30% more energy-intensive, Sadovnik noted.
“If Transalloys is granted relief on par with that expected for ferrochrome, manganese smelting can be saved,” he said.
Earlier, Glencore chief executive Gary Nagle expressed confidence that the ferrochrome sector’s requirement of a 62c per kilowatt-hour energy tariff would be met before the end of February.
Sadovnik said a 62c per kilowatt-hour tariff would align with the three to four US cents per kilowatt-hour range paid by globally competitive smelters in jurisdictions such as the United States, Norway and Malaysia.
“Ironically, South Africa is losing competitiveness to countries that lack our resource base but have proactively structured energy solutions to capture the socio-economic benefits of beneficiation,” he said.
Breathing space
A tariff reduction contemplated by Glencore, Sadovnik emphasised, would serve as an interim measure.
“It is an immediate bridge while a long-term energy solution is being developed. It would provide much-needed breathing space, not only for Transalloys but for the broader ferroalloys sector,” he said.
He added that both short-term relief and long-term reform must be considered within the broader fiscal and industrial policy framework likely to be outlined in the budget.
“Electricity pricing reform for energy-intensive sectors is not a concession. It is an investment in preserving productive capacity, export earnings, tax revenue and maintaining an attractive investment climate.
“A competitive framework strengthens the national balance sheet over time,” Sadovnik said.
He noted that the ferroalloy value chain is widely reported to support approximately 300,000 direct and indirect employment opportunities.
“A consolidated ferroalloys sector likely represents the largest Eskom’s customer (sic); smelter closure, conversely, would have a domino effect, forcing Eskom to cut back power generation, spreading its fixed costs and huge debt burden over (a) smaller number of paying customers, and consequently pushing the upstream coal miners to close,” he said.
Transalloys has engaged Eskom, the government and other stakeholders since October last year to secure a workable electricity tariff solution.
Over time, escalating tariffs have rendered ore beneficiation in South Africa structurally uncompetitive.
“Timing is now critical,” Sadovnik said.
“Without certainty, the company will be compelled to act. With it, we have an opportunity to protect jobs, preserve industrial capability and contribute to growth.”