Glencore Triumphs Over Rustenburg Municipality and Nersa in Electricity Surcharge Dispute

A recent ruling by the Johannesburg High Court has determined that the Rustenburg Local Municipality (RLM) abused its authority by attempting to levy a 6.1% surcharge on the electricity tariff for a smelter operated by a joint venture of multinational giant Glencore and South Africa's Merafe Resources. This decision comes as a significant reprieve not just for the companies involved, but also for the broader South African mining industry and hundreds of workers whose livelihoods were imperiled by the potential surcharge.

The controversy began when RLM passed a resolution earlier in the year to impose the additional charge on the power supplied to the smelter – a ruling that the court found put some 700 jobs at risk according to submissions from both the joint venture and the National Union of Metalworkers of SA (Numsa). The high stakes of this case were indicative of the broader economic pressures faced by South African industries, particularly those like the Rustenburg smelter, which are heavy electricity consumers and thus vulnerable to price fluctuations.

An essential factor in the proceedings was the pooling and sharing venture (PSV) through which Glencore and Merafe operate. The PSV oversees two other smelters within RLM's purview, and a key argument was that imposing the surcharge would render the Rustenburg smelter economically unsustainable, potentially forcing it to shut down its operations.

In an unexpected twist, the National Energy Regulator of SA (Nersa), which oversees such matters, initially failed to approve a long-term negotiated pricing agreement (NPA) for the smelter, deeming itself unqualified to sanction the surcharge as RLM was not the direct electricity provider. However, following dialogue with both Eskom, the national power utility, and RLM, Nersa changed its decision but denied the Rustenburg smelter's inclusion in the long-term NPA due to an impasse over the surcharge with RLM.

The judge overseeing the case, Marcus Senyatsi, delivered a sharp rebuke to both RLM and Nersa. His judgment criticized RLM's intentions behind the surcharge, implying that it was not due to any direct cost to the municipality for providing electricity but rather as a preemptive move with an eye towards becoming a metro in the future. Senyatsi’s judgment emphasized that RLM's stance was "grossly abusive of its power as an organ of state."

Nevertheless, Nersa’s conduct did not escape censure either. Judge Senyatsi took the regulator to task for not including the Rustenburg smelter in the joint NPA application, particularly after confirming earlier that RLM was not the smelter's electricity supplier.

Provided by the government in 2008, the purpose of the NPA is to maintain competitive electricity pricing to ensure that South Africa's smelters remain viable amid a surge in energy costs that has seen a 722% increase over the previous decade. By securing competitive pricing, the NPA aims to avoid the closure of local smelters and the consequent loss of jobs that would result if the ferrochrome industry were forced to export its product as a raw material instead.

With the court's decision, the Rustenburg smelter has evaded exclusion from the NPA, ensuring its continued operation and consolidating the positions of hundreds of workers. It serves as a strong message to regulators and local authorities about the need for careful attention to the economic ramifications of their decisions. As of now, neither Nersa nor RLM have offered comments on the court's findings.