Eskom’s buyback program could be coming to an end. Even though South Africa’s energy shortage won’t end for at least all of 2013, the state-owned utility reportedly has been told to halt the program. “It was effective but far too expensive,” one insider said. “Some people felt Eskom was being used since the producers would have been forced to close at least some of their furnaces solely due to market conditions.” Also, the National Energy Regulatory of South Africa’s expected decision to grant half Eskom’s request for an annual 19-21% power price increase over the next five years and then limit increases to the inflation rate doesn’t provide enough money for Eskom. Analysts expected financial shortfall over the next five years to be ZAR190-billion. The government previously said it wouldn’t provide any more financial assistance and Eskom has tapped out of the equity markets.

 

What could happen is that Eskom can declare a power emergency and reduce electricity to large industrial users without giving any compensation. “It’s not an ideal situation but it would solve the problem,” one insider said. “The Eskom business model has to change, but no one is sure how to do it and what the new model will be like.”

 

In the meantime, more South African ferrochrome producers have signed on to extend their furnace shutdowns though the end of May; on June 1 the higher winter power rates take effect for three months.

 

It is thought that the buyback program will result in: Samancor Chrome having five furnaces offline; Xstrata/Merafe, three offline with the possibility of three more; Tata closed completely; International Ferro Metals, one furnace closed; and Mogale, two units shut. Hernic is expected to close two furnaces and reportedly has a problem at one other unit which could keep it closed.