Power costs threaten shutdown of SA’s only silicon producer

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JEREMY MAGGS: South Africa’s only silicon metal producer is warning it may shut down permanently, with electricity costs now swallowing more than half of production expenses after years of steep tariff hikes.

But beyond the immediate business crisis, this is also shaping up potentially as a major labour shock, with the risk of large-scale retrenchments, supply chain fallout – that’s always a worry – and the permanent loss of specialised industrial skills.

Read:

Let’s talk in a little bit more detail now with Lucinda Hinxman, director and head of employment and labour at the law firm CMS South Africa.

Lucinda, from a labour perspective, then how serious is this? Are we looking at a contained retrenchment process or something far broader?

LUCINDA HINXMAN: I suppose we’ve always got the direct impact, which would be the retrenchment process for the employees at the business themselves.

But then we would always have the indirect consequence where those employees will of course, be carrying the costs of their families. So there’s the indirect consequence of all of those individuals who are impacted as well.

JEREMY MAGGS: Are you able to give us just a little bit of context as to how important a silicon metal producer is within the broader South African economy? How big a contributor is it and what scale are they operating at?

LUCINDA HINXMAN: I understand this business in particular has been operating in the market since 1997, and I think one of the operations in particular, is coming up for its centenary later on this year, I think in a month or two. I think they are very pivotal to our country.

Being the only one here means that if we lose them, we are going to have to start looking at importing, and then we look at rising costs for everyone.

So it’s not just the employees who are impacted, it’s the whole economy that then has to bear the implications of this.

JEREMY MAGGS: As I see it, there are two big issues that are worth discussing. One is the issue of specialised skills and the other is energy costs. Let’s focus on specialised skills first of all, do you think there’s a real risk that once these kind of skills are lost, they don’t come back and that has a broader knock-on impact, surely, on other similar and even competing industries?

LUCINDA HINXMAN: Yes. I think it’s the tale that’s as old as time for South Africa, unfortunately, I think we have seen such a loss of skills.

We have obviously seen some skills return, but we do see specialised skills leave and we don’t see it come back.

We’ve seen so many industries shut down in so many different ways, and they just don’t ever return, and we won’t see it come back. It will move on; we’ll see it being imported and we’ll have to carry on that way.

JEREMY MAGGS: The adjunct concern to all of that is indirect job losses that typically would run into a local economy.

LUCINDA HINXMAN: Yes. The indirect loss is huge. I think the last stat I saw was that there would be as many as 60 000 people impacted.

Even though it would be a loss of 200 jobs directly impacted, from an environmental impact and broader operations, there are 60 000 individuals who are ultimately impacted by this. So the indirect consequence is enormous.

JEREMY MAGGS: That is a huge number of lives that are impacted. The other issue that I raised was the broader pattern here of energy costs hollowing out heavy industry in South Africa.

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This company, Ferroglobe, is not the only one that’s been impacted. This is a similar experience, I imagine, for many other companies that rely on high energy.

LUCINDA HINXMAN: Yes, and I think this is why my concern is that we are seeing more of a reactionary response from government. It’s a concern. We see these energy crises come up in different industries.

We saw Glencore and Merafe raise their flag long ago and say, we’re going to have to shut down our smelters. Nothing was done but at the very last minute they did get the tariff relief.

Now we are seeing this again and you would think that there would be some sort of proactive response to say, well, we know that these tariffs are going to cripple many, many industries that are reliant on electricity.

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That there would be some sort of proactiveness to know that this is going to be the response.

But we seem to have these reactions, and we wait for these industries and these businesses to really be on their knees, and wait for a crisis to occur, to wait for government to maybe respond and hope that they respond. We still don’t know if they’ll respond.

JEREMY MAGGS: Lucinda, beyond tariff relief, I guess there are questions about whether it can realistically save jobs, is there anything else that government, in your opinion, can do in terms of intervention and what form that might take?

LUCINDA HINXMAN: I think it’s a difficult one. I suppose it comes back to the question of job creation and what does that look like? Are there better tax relief systems that we could be putting in place? Do our laws need reform?

I’m of the belief that it’s not often the laws need to be changed, the laws are generally just fine. It’s normally how we’re implementing them and how we are going about executing.

So I do think it’s a difficult one. I think it’s more about the execution and in the doing.

JEREMY MAGGS: And if this plant closes, and this is the last question, it does send out a very strong and negative signal, does it not, about the future of industrial employment in the country.

LUCINDA HINXMAN: Absolutely. As all of them do. I think in this particular climate, the world is in a bit of crisis. With the fuel issues that we are having and this, I think it just sends a terrible message.

JEREMY MAGGS: All right. It will be interesting to see what happens as far as this is concerned and whether there is some kind of lifeline that is thrown out by government. Lucinda Hinxman, thank you very much indeed, director and head of employment and labour at the law firm CMS South Africa.