Scrutiny grows over cost of Nersa’s electricity relief plan

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JIMMY MOYAHA: Last week we had an interest rate decision out of the South African Reserve Bank, increasing interest rates by 25 basis points or 0.25%. This means that our bonds and all of our debts in South Africa will now cost us a little bit more.

We thought this might be a lot of pressure for consumers, and we haven’t yet taken a look at the impact this could potentially have on businesses.

I’m joined on the line by the executive head for electricity [regulation] at Nersa, Rhulani Mathebula, to look at their developments around Nersa tariff reliefs and where we go to from here as consumers.

Rhulani, lovely having you on the show. Thanks so much for taking the time. Let’s perhaps start the conversation with the work that went into finalising some of the tariff adjustments and the deadlines that Nersa was under.

We know that a lot of that was concluded towards the tail end. In fact, all of it was concluded towards the tail end of last month, before the 30th of May deadline. Let’s start with the outcomes of that.

RHULANI MATHEBULA: Jimmy, good evening and good evening to your listeners, and thanks for having me on the show. Yes, indeed. The regulator has recently concluded and approved the application by Eskom for the adjustment on the negotiated pricing agreement with Transalloys, as well as ferrochrome [players] Samancor and Glencore.

Read: Glencore-Merafe halts layoff plans as Nersa throws smelters a lifeline

JIMMY MOYAHA: Rhulani, the adjustments, especially where they relate to the smelters in the country – that’s been quite the contentious topic. We know that initially there were proposals that were put forward. We were sitting at about 87 cents per kilowatt hour. We’re now down to around the 62 cent mark.

Can you take us through the methodology around that – understanding that, of course, different pricing arrangements and different tariff structures apply to different entities in the country?

RHULANI MATHEBULA: Yes, indeed, Jimmy. You would recall that in 2023, when these businesses started experiencing challenges, they approached Eskom and indicated that because the electricity formed in excess of 30% to 40% of their cost, they were becoming no longer globally competitive, their production was severely reduced in terms of demand, and they were in a situation where they needed to start shutting down some of the smelters.

That is when, Jimmy, there was this negotiated pricing agreement that, to give an example, the likes of Samancor and Glencore actually entered with Eskom. And this is the same negotiated pricing agreement which was approved by the regulator in 2023, and it was effected in 2024. It was a six-year pricing agreement.

This is the same agreement that is actually being negotiated now to adjust the pricing – also to deal with the persisting pressures that these smelters are actually currently dealing with.

So what happened in December 2025? The smelters indicated that they were unable to continue.

Actually, they were issuing Section 189 [notices] to their employees because they were to release them and shut down most of their smelters.

However, with the intervention of government and Eskom there was the agreement that the price can be reduced to the 87 cents [per kilowatt hour], with obviously government looking at how to take care of the shortfall that Eskom was going to be facing with regard to this reduced price.

Unfortunately, when this was done, [the tariff] still could not afford the smelters to ramp up their production. Actually, they could only run at 40% of their load at that price. And hence the smelters, government as well as Eskom, had to go back to the table and talk to what can we do?

I must say that this is on the backdrop of the government policy, which is called ‘The long-term negotiated pricing agreement’ .

The policy itself, Jimmy, seeks to address, among other things, the issues of direct and indirect job losses, issues of increased economic activities.

So at this time when the smelters were indicating that they are issuing Section 189 [notices], the intervention by government was to say ‘Please hold; let’s see what we can do’.

The smelters have been paying their employees since December, with the smelters not running or bringing in [revenue but doing] maintenance while they were allowing government and Eskom to negotiate and talk about the shortfall being actually taken care of.

So in the application that was made to the regulator, it was indicated – was also one of the conditions of the regulator – that this shortfall will not be transferred to the consumers.

So that is one of the conditions in terms of the approval that was made by the regulator, to say this shortfall should be ring-fenced and it should be dealt with by Eskom; it should be dealt with also by intervention by government. So that is where we are at this point.

However, on the application that was approved itself, Jimmy, there are also conditions to the smelters themselves in terms of how much load they need to take on; this is on this contract, where we’re indicating, for example, that in terms of this relief, they should be taking in 80% of the contracted load, within a specific time period.

This is to ensure that Eskom can at least take care of its fixed cost in producing electricity.

JIMMY MOYAHA: Rhulani, you mentioned the shortfall that their agreement says would not be passed on to consumers. If we look at the tariff increases that have been requested by Eskom in the past, they have not been directly related to any one particular negotiated pricing agreement.

How is Nersa going to enforce the fact that the R16-odd billion shortfall that’s now being created by this preferential agreement would impact Eskom directly on their balance sheet?

How does Nersa then distinguish between the ring-fenced debt, or the ring-fenced shortfall and what Eskom might apply to in future increases?

RHULANI MATHEBULA: Our role as the regulator does not end at approving this tariff.

So the first thing that is going to happen is that on a quarterly basis Eskom will be sending us a report that shows how this agreement with the smelters [is going] – whether they are adhering to the requirements as approved by the regulator. So that is going to be monitored. So the regulator will be continually monitoring that.

Secondly, you would know, Jimmy, that we have approved the tariff for Eskom. We have already indicated what is the allowable revenue that Eskom is allowed to recoup from its customers until March 2028, whereby now we will have a new determination.

So for now, the allowable revenue for Eskom is locked until March 2028, so they will not be having any other additional revenue from what has already been determined.

And in their application for the subsequent year, we will be ensuring that in their application their costs that are indicated in the application do not include additional costs that are related to this programme.

So we will be hands-on in terms of monitoring this to ensure that it is not passed on to the customers.

JIMMY MOYAHA: Rhulani, before I let you go, I want to get your thoughts on the negotiated price agreements in general, and how it is that Nersa evaluates them. I can imagine the smelters aren’t the only organisations or companies in South Africa that could benefit from relief in terms of the rates that they are charged.

How does Nersa then evaluate these applications – or is it the function of Eskom to bring those to you for evaluation?

RHULANI MATHEBULA: Yes, there are two steps to it. The licensee, which is currently Eskom, is the one.

[Then] when the customers declare hardship and believe that there are costs in terms of electricity in all the conditions that are indicated in the long-term negotiated pricing agreement framework – if they meet those conditions, they can approach Eskom, in this case, and indicate that they are [battling] with the current price of electricity and they want a negotiated pricing agreement.

And on our side, when Eskom had now agreed with them, we then evaluate if this agreement is not going to be detrimental to Eskom as a licensee itself and secondly, if this is not going to adversely affect the customers or society as a whole.

So in this case, as I’m referring to the current case of smelters, obviously we needed to look at those two things. One is the impact of having the smelters shut down in terms of the direct jobs, the indirect jobs, the industry itself.

But also to look at what the pros and cons for Eskom are. On one end, Eskom needs to get the load to be able to cover it.

It’s – what do you call it – a fixed cost because if Eskom does not cover its fixed cost, it means it will need society, you, to cover that shortfall.

Hence we want to make sure that the industry or the licensee also is able to recover its minimum cost.

JIMMY MOYAHA: And those costs continue to be a burden on South African consumers.

We’ll see how this negotiated pricing agreement benefits the smelter sector as they look to keep jobs intact. We’ll leave the conversation on that note.

Rhulani Mathebula, executive head of electricity at the National Electricity Regulator of South Africa, joined us to take a look at Nersa’s decision to grant further relief to the smelters in South Africa and what that would mean for us as South Africans.