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The negotiated price agreements (NPA) entered into between Eskom and industrial majors have fallen short in providing tariff relief for South Africa’s industrial base, threatening the utility’s sales and the existence of industry.These are observations made by the National Energy Regulator of South Africa (Nersa) in its draft report related to the regulator’s market inquiry into the impact of fixed charges levied by municipalities and the unbundled generation charges recently introduced by Eskom.The paper notes that electricity tariffs have increased by more than 1,100% since 2003, resulting in industrial electricity sales plunging from a peak of 71,629 GWh in the 2004/05 financial year to 43,153 GWh in 2024/25 — a decline of about 40%.To lessen the burden on energy-intensive industries, which are central to South Africa’s industrial economy, supporting output, employment, exports, and downstream value chains, Eskom has over the years entered into NPAs.However, Nersa’s interim report says these agreements have not been the panacea they were thought to be in significantly reducing the cost of energy for industrial stalwarts.“NPAs, once designed to protect trade-exposed users, have not insulated them from cost pressure. NPA tariffs for smelters increased by 200% over four years, rising from 37.65 c/kWh to 112.64 c/kWh, while standard tariffs continued climbing,” the report reads.“The combination of high volumetric rates and expanding fixed cost recovery creates a nonlinear cost burden. Firms cannot optimise costs meaningfully through consumption cuts or technological substitution alone, since both variable and fixed charges erode financial sustainability. “These dynamics raise long-term concerns about plant closures, reduced investment, and deindustrialisation, with direct consequences for employment, exports and Eskom’s own revenue base as large users contract or exit the system.”To address this, the report finds that tariff design should consider the broader economic effect of electricity pricing on productive sectors.Nersa recently granted 54% tariff relief to the Glencore-Merafe joint venture and Samancor to help them reopen their smelters and save jobs in the chrome industry. These dynamics raise long-term concerns about plant closures, reduced investment, and deindustrialisation, with direct consequences for employment, exports and Eskom’s own revenue base as large users contract or exit the system.— Nersa reportChina has emerged as the biggest producer of ferrochrome, largely due to its well-priced electricity.ArcelorMittal South Africa, which spends about R3.5bn a year on electricity, is also engaged in high-level discussions with Eskom to secure a favourable tariff, as is South32’s Hillside Aluminium smelter in Richards Bay.Eskom has already asked Nersa to grant Transalloys, the country’s last remaining manganese smelter, temporary tariff relief.Transalloys’ R5bn plant in Mpumalanga is in peril, weighed down by electricity prices. The jobs of hundreds of employees and subcontractors are on the line, with similar difficulties playing out in the ferrochrome and other industries.Key entities include South32’s Hillside smelter, which alone accounts for about 5.6% of Eskom’s total sales. ArcelorMittal South Africa’s Newcastle plant, now under care and maintenance, and mining operations such as Sishen, Kolomela, and Richards Bay Minerals (RBM) are also some of Eskom’s largest customers.The country’s only producer of high-grade electrolytic manganese metal, Manganese Metal Company, is the latest to have its relief application received favourably by Eskom.To this end, Eskom has asked Nersa to grant the company two years of tariff relief. In its application, Eskom acknowledged that the competitive position of the South African manganese industry in the global market has declined, resulting in reduced production capacity despite South Africa possessing natural manganese ore in abundance.For smelter operations, electricity already accounts for 30%-40% of total production costs. South32’s Mozambique-based Mozal Aluminium smelter was placed in care and maintenance in March after it failed to strike a tariff relief deal with Eskom. Mozal is Mozambique’s largest private sector employer, accounting for about 3% of Mozambique’s GDP.Before 2007, South Africa boasted some of the world’s lowest electricity prices, a competitive advantage that attracted energy-intensive industries.Nersa’s report also flags concentration of electricity demand among a small number of large power users, which it said increases exposure for customers and Eskom to changes in consumption patterns, production decisions and customer migration.“This concentration reflects the capital-intensive structure of South Africa’s industrial electricity demand, where a relatively small number of smelters, mines and processing facilities account for a significant share of consumption,” the report reads.“From a tariff design perspective, this is important because as large customers reduce consumption or migrate towards alternative supply arrangements, the recovery of predominantly fixed electricity system costs needs to be recovered from a smaller customer base, placing upward pressure on tariffs for remaining users.”The report also highlights the socioeconomic pressures on households due to sky-high electricity prices, which it says gobble as much as 20% of household spending.“The approved 12.74% tariff increase implemented in FY2025/26, with cumulative increases exceeding 600% since 2008, significantly intensifies affordability difficulties,” the report warns.“For an average household consuming 500 kWh, the estimated increase of about R120 per month represents a material erosion of disposable income, especially for low-income households, where electricity already accounts for around 10% to 20% of total expenditure.“Lower-income households spend a significantly larger proportion of their income on electricity compared to middle- and high-income households. This highlights the regressive nature of electricity pricing.”
