Glencore Warns Of Smelter Closures As Tariff Talks With Eskom And Regulator Face Uncertainty

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar. Image credit: Reuters/Arnd Wiegmann/File Photo

Glencore has said it requires reduced tariffs to keep its loss-making smelters open and avert job cuts. The government is keen to save the smelters, which employ thousands and are major customers of the state-owned electricity supplier Eskom.

Eskom offered the country's two biggest ferrochrome firms, including the Glencore unit, heavily discounted electricity in a bid to rescue their troubled operations.

The offer to reduce electricity tariffs from R1.36 to 62c per kilowatt hour is subject to Nersa's (National Energy Regulator of South Africa) approval, under conditions yet to be made public.

But Glencore Ferroalloys CEO Japie Fullard warned the company could walk away from the talks, saying some conditions of the package deal were unacceptable.

"The terms and conditions, the way that it is now, I unfortunately will not be in a position to sign," Fullard said at a mining conference in Johannesburg.

"So that means, if they do not come to the party, we are going to walk away from the 62c (deal)," he added.

High costs

Fullard said representatives of the ferrochrome firms were meeting government representatives.

Glencore deferred lay-off procedures at its ferrochrome until 31 March to allow ongoing negotiations. As many as 1,500 jobs would be cut if no agreement is reached on the electricity tariff package, Fullard added.

Samancor Chrome, the other ferrochrome producer which was offered discounted electricity, has said it is going ahead with plans to lay off workers.

The firm said while the reduced tariff addressed electricity cost pressures, the terms and conditions attached to the offer posed "a threat to the long-term viability of the ferrochrome industry".

Neither Glencore nor Samancor have disclosed the conditions as negotiations are ongoing.

South African smelters are battling high electricity costs, which have risen tenfold since 2008, amid growing competition from Chinese producers. Only 11 out of a possible 66 smelters are still operational in the country.