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Eskom announced on Friday that it had extended an eleventh-hour 62c/kWh tariff offer to ferrochrome producers Glencore-Merafe Chrome Venture and Samancor, but indicated that negotiations on the precise terms and conditions still needed to be finalised before the package could be submitted for regulatory approval.

Hence the details of the package, including its structure, duration, take-or-pay commitments, and any risk-and-reward sharing, would only be made available once the negotiations had been concluded and a submission was made to the National Energy Regulator of South Africa (Nersa) for its approval of the discounted tariff.

Eskom CEO Dan Marokane promised that the terms and conditions would be shared transparently both in the submission and during the public participation process that Nersa would conduct.

He also indicated that the package being prepared for Glencore-Merafe Chrome Venture and Samancor would form the basis of a standard smelter offer that could be extended to other ferroalloy producers, including those smelters that process manganese and vanadium.

No timeframe was given for concluding the Nersa process in relation to the ferrochrome offer, or for launching a broader standard offer for smelters.

R10bn From Existing Debt-Relief Package

Marokane promised that other electricity customers would not be leaned on to subsidise the reduced tariff to the smelters.

Instead, the initial funding to close the revenue gap that would arise for Eskom would be secured within the framework of the existing R230-billion debt relief package that had been extended to the utility by government, with an outstanding R10-billion transfer from the National Treasury to Eskom under the package to be used to close the gap this year.

Much store was also being given to Eskom meeting its target of making cumulative savings of R112-billion by 2029 to help fund the lower tariffs to the smelters without breaching its commitment of keeping future standard tariff hikes to single-digit levels.

The current Eskom standard tariff stands as 195.95 c/kWh, a price that includes subsidies for those industrial customers that have secure a negotiated price agreement with Eskom.

Announcing the offer just hours before the February 28 deadline set for reaching a deal with the two companies to prevent the closure of further capacity, Electricity and Energy Minister Dr Kgosientsho Ramokgopa expressed optimism that the offer would be sufficient to avert large-scale planned retrenchments.

In fact, the Minister argued that there was potential to restart mothballed capacity and raise the number of smelters in operation from 11 currently to 49 by the end of 2027 and increase employment in the sector from about 11 400 people to over 121 000 people over the same period.

Marokane emphasised the importance of the smelters to Eskom's overall demand, noting that restored demand from Glencore-Merafe Chrome Venture and Samancor would represent yearly sales of 12.8 TWh, while a return of other smelters would represent 26 TWh, excluding the large aluminium smelters.

Ramokgopa acknowledged that other electricity consumers, including struggling households and businesses, might perceive the offer being made to the smelters as unfair.

However, he said the decision to support the sector was based on difficult trade-offs that took account not only of the risks to jobs and industrial capacity but also South Africa's critical minerals ambitions.

He also said that upcoming revisions to the electricity pricing policy would seek to ensure greater fairness by outlining support for poor households and small businesses, alongside efforts to sustain strategic beneficiation and industrial capacity.

South African Reserve Bank governor Lesetja Kganyago says the spin-offs from the policy decision to lower the inflation target have "exceeded our most optimistic expectations".

On November 12, Finance Minister Enoch Godongwana announced that the new inflation target for South Africa would be 3% with a one percentage point tolerance band. The previous target range of 3% to 6% had been in place for 25 years.

In response to a question posed on the impact of the change during a recent Budget media briefing, Kganyago said the bank had expected that lowering the inflation target would result in a 200 basis point lowering of bond yields, alongside a strengthening of the rand and a lowering in the country-risk premium.

"What we have now calculated is that, from December 2024 to date, bond yields in South Africa have gone down by 400 basis points. That's significant and it's a significant saving."

He acknowledged that the better-than-expected performance could not be attributed to the new target alone, with other positive changes having also occurred simultaneously, such as improved commodity prices that also accentuated the appreciation of the rand.

The lowering of the target had also had an influence on inflation expectations, a channel that the target aims to specifically address.

"[In] December, when the inflation expectations survey by the Bureau for Economic Research came out, inflation expectations were at their lowest since we started surveying inflation expectations in South Africa. And that is significant, because that decline says to us that inflation expectations are converging towards the target," Kganyago said.

R277BN DEBT WINDFALL

Meanwhile, National Treasury director-general Dr Duncan Pieterse provided a quantitative assessment of the impact that recent monetary and fiscal policy developments would have on the country's debt profile.

He said a National Treasury calculation showed that by 2028/29, government's debt stock would be R277-billion lower as calculated in the 2026 Budget relative to what was shown in the Medium-Term Budget Policy Statement (MTBPS) of November.

Pieterse said R47.6-billion of that could be attributed to lower revaluations of the country's inflation-linked bonds, which were revalued quarterly.

"Because of lower inflation, that bond portfolio is now going to cost us R47.6-billion less than we thought in the MTBPS," he explained.

"But it's important to say that the other elements of that R277-billion lower debt stock have to do with improving fiscal credibility.

"For example, we are issuing bonds at far lower discount rates now than we did last year, and because we are issuing cheaper bonds our debt stock is going to be lower by about R59-billion and that's really because of the fiscal improvements that we are seeing alongside the shift in the inflation target."

A study has been launched to assess South Africa's existing railways manufacturing capacity and capability and to make recommendations on how policy and procurement can be leveraged to bolster localisation and transformation.

The study has been commissioned by the Localisation Support Fund (LSF) and will be conducted by Letsema Consulting over the coming six months.

It is being supported directly by the African Rail Industry Association (ARIA), which has urged its members to provide detailed inputs, as well as the Department of Trade, Industry and Competition, which has provided funding.

ARIA chairperson Anand Moodliar says the study will assess the opportunities for expanding rail localisation as both Transnet and emerging private train operating companies (TOCs) gear up to meet the target of lifting rail volumes to 250-million by 2030 from the approximately 160-million tons achieved by Transnet in 2024/25.

Moodliar, who is also CEO at the Barberry Group, one of 11 TOCs to have secured slots to operate on the Transnet network, says this will require the Transnet Freight Rail Operating Company to deliver about 185-million tons yearly and the TOCs the other 65-million tons.

To scale up to 65-million tons, the TOCs would need to invest between R30-billion and R40-billion in locomotives and wagons, which together with ongoing Transnet investment, created the potential for local industrialisation.

To deliver on the slots awarded to it, Barberry has ordered 28 of Alstom's 23 Class electric locomotives, a model for which there is already local manufacturing, as it has also been procured by Transnet.

Moodliar also highlighted some of the local-content spin-offs relating to a R3.4-billion rolling stock investment programme by Traxtion, which has also secured slots to operate on the Transnet network.

Transnet is in the process of establishing a leasing company to supply local locomotives and wagons to the TOCs, and chief business development officer Yolisa Kani reveals that it has received interest from half of the 11 TOCs and has already signed four contracts.

Moodliar expresses confidence that this rising level of investment activity is sufficient to stimulate a supplier ecosystem supportive of localisation and transformation, while also stressing the importance of competitive supply if the industry is to recapture rail volumes from a road industry that is highly competitive.

The LSF's Tondani Nevhutalu says there is currently more than R2.5-billion of rail equipment being imported yearly, much of which could potentially be met by domestic industry should a supportive policy and procurement framework be developed.

She reports that the study will assess aggregated demand across Transnet, the Passenger Rail Agency of South Africa and the Gautrain and evaluate local supply capabilities to meet that demand. Five workstreams will, thus, be created to study demand aggregation, supplier capability, policy instruments, procurement reforms and competitiveness.

Letsema Consulting's Shenelle Nair says the aim will then be to identify strategic opportunities for localisation and transformation based on the demand-side mapping, the supply-side assessments, and a review of the policy instruments.

The study will also make recommendations for new policy instruments including which products and components should be designated by government for localisation and what local-content thresholds should be put in place to support industrial growth.

ARIA CEO Mesela Nhlapo says that, with the reform of the rail sector now advancing, localisation represents the next big challenge for the industry.

"Every locally produced locomotive, wagon and rail component represents livelihoods, technical skills and opportunities for artisans, engineers, technicians and small businesses across the value chain, Nhlapo asserts.

Engineering News editor Terence Creamer discusses the big themes in the 2026 Budget, delivered by Finance Minister Enoch Godongwana on February 25, as well as what the Budget means for business and the economy.

Accelerating infrastructure investment emerged as a central theme of the 2026 Budget, which Finance Minister Enoch Godongwana characterised as representing a "turning point" for both debt stabilisation and for government's reform-led growth agenda.

Having signalled in November that there would be a concerted effort to shift the composition of spending to infrastructure, Godongwana confirmed that capital payments would be the fastest-growing item of government expenditure over the coming three years.

He also announced that infrastructure spending by the public sector would total R1.07-trillion over the period and that accelerated efforts would be made, through government's reform agenda, to attract private investment into infrastructure. This in a bid to lay the foundations for higher growth than was currently being achieved.

While the Treasury made a modest upward revision to the growth outlook relative to the one outlined in the Medium-Term Budget Policy Statement (MTBPS) of November, the forecast remained muted.

Government revised its estimate for 2025 to 1.4% from 1.2%, and is projecting growth of 1.6% in 2026, up from the 1.5% outlined in November. It is still expecting growth of 1.8% in 2027 and 2% in 2028.

SPENDING SHIFT In an important shift, the Budget indicates that payments for capital assets will grow by nearly 10% over the coming three years, compared with growth of 4.4% for employee compensation, albeit with employee compensation remaining the largest share of expenditure by economic classification.

Consolidated government expenditure is projected to increase at an average annual rate of 3.9% over the period, from R2.58-trillion in 2025/26 to R2.89-trillion in 2028/29.

However, the Budget deficit is projected to narrow from 4.5% of GDP in 2025/26 to 2.9% of GDP in 2028/29, while Godongwana promised that public debt would peak in 2025/26 at 78.9% of GDP.

The peak in gross debt was higher than the 77.9% signalled in November, a rise that was attributed to pre-funding to take advantage of favourable market conditions that is resulting in cheaper borrowing costs. There is also a steeper fall in the debt-to-GDP profile thereafter than outlined previously.

The Minister said that, for the first time this decade, a fiscal framework was being tabled in which debt-service costs would grow more slowly than overall expenditure. Debt-service costs would reduce from 21.3% of revenue in 2025/26 to 20.2% in 2028/29.

The Budget Review also provides details of several infrastructure reforms aimed at improving delivery and attracting private investment to tackle deep backlogs that have arisen as a result of serious underinvestment in infrastructure projects, which have also been prone to corruption and mismanagement.

The result is large deficits in electricity, rail, roads, water, sanitation and municipal infrastructure, which the National Treasury acknowledges is limiting productivity and raising the cost of doing business.

It is also a cause of deep frustration among residents, which have had to endure extreme electricity loadshedding, poor transport services and what is now regarded as a water crisis.

R1.07-TRILLION PUBLIC PIPELINE As a share of GDP, fixed investment declined to 14.2% in 2024 from 14.8% in 2023, well below the National Development Plan's 30%-of-GDP target.

"Accelerating investment, while improving project execution and maintenance, is critical to crowd in private capital and expand productive capacity," the Budget Review states.

The R1.07-trillion in infrastructure investments by the public sector will be distributed across the three spheres of government, as well as public entities and State-owned companies.

More than 54%, or R577.4-billion, will be executed by State-owned companies and public entities, with funding pooled from the national Budget, own revenue and private investors.

Provinces are expected to spend R217.8-billion on infrastructure over the same three-year period, with municipalities projected ...

Budget outlines shift from oversight to 'structural intervention' to tackle municipal dysfunction

Amid growing dissatisfaction with the performance of many of the country's 257 municipalities, 162 of which are categorised as being in financial distress, the National Treasury has outlined what it describes as a fundamental shift in the subnational fiscal architecture that moves from oversight to active structural intervention.

"At the municipal level, this shift involves changes to legislation, governance arrangements and technological intervention," the Budget Review states, indicating that the proposed municipal reforms are rooted in the revised White Paper on Local Government.

It also states that national government will use powers granted to it under the Constitution to stabilise the system, with unauthorised, irregular, fruitless and wasteful expenditure in municipalities having reached R236.3-billion in 2023/24.

"After years of support measures to strengthen financial governance, the National Treasury has invoked section 216(2) of the Constitution against persistently noncompliant municipalities, enabling the Treasury to halt national transfers to those in consistent breach of the Municipal Finance Management Act (MFMA)."

The provision had already been applied against 75 municipalities.

JOBURG INTERVENTION?

Asked during a Budget media briefing specifically about the City of Johannesburg, which is facing financial and operational Finance Minister Enoch Godongwana indicated that a direct intervention was likely.

However, he said the form that such an intervention could take had not yet been determined.

The reasons for municipal financial instability are identified in the review as being underpinned by weak revenue collection, poor credit control and a lack of financial discipline.

These weaknesses are being amplified by rising electricity and water input costs. But the accumulation of arrear debt owing to entities such as Eskom is attributed mainly to failures to bill accurately, collect revenue consistently, and ring-fence and remit collections for bulk services.

"These weaknesses have left 88 municipalities with unfunded budgets and limited capacity to maintain infrastructure and sustain services."

ESKOM DISTRIBUTION AGENCY AGREEMENTS Government has endorsed Distribution Agency Agreements (DAAs) to empower Eskom to take over electricity distribution on behalf of defaulting municipalities to ensure revenue is collected, current accounts are paid and service reliability is restored.

It has also written to 15 of the 71 municipalities that have signed up for its debt-relief programme, but which are not meeting the conditions, to enter into DAAs with Eskom or face being excluded from the scheme and becoming vulnerable to Eskom direct credit control mechanisms.

The National Treasury says a combination of targeted investment in revenue infrastructure, performance-based grant reforms, and long-term financial planning support will be pursued to improve municipal self-reliance and fiscal sustainability.

At the legislative level, the MFMA Amendment Bill is scheduled for public comment in early 2026, with the aim of strengthening monitoring and intervention tools.

Under Phase 2 of Operation Vulindlela, an initiative that has overseen reforms to stabilise electricity supply and restore key freight logistics services, reforms are under way to shift to a utility model for water and electricity, with these services run like businesses accountable to government and the public.

In his Budget speech, Godongwana argued that revenue collected for a specified function should be used primarily to sustain that function before any cross-subsidisation took place.

"In reality, this principle is consistently flouted. For instance, Johannesburg's water revenue is R11.9-billion but only R1.3-billion is allocated to Joburg Water for capital expenditure. This has contributed to the massive backlog of R64-billion that is needed to fix water supply pro...

The government is the biggest beneficiary of the South Africa auto industry, says manufacturing and industrialisation expert Justin Barnes.

The average tax on an average vehicle sold in South Africa is roughly R120 000.

"So, on average, when you buy a [R500 000] motor car in the market, R120 000 is handed over to government in the form of value-added tax, ad valorem (luxury) tax, carbon tax and the tyre levy."

For a more luxurious vehicle, priced at more than R800 000, the tax burden is 34%, notes Barnes.

Barnes' comments come as government is reviewing its ad valorem duty structure on new light vehicles, as part of an effort to address the dominance of imported vehicles versus locally manufactured vehicles – or, in other words, it is mulling a potential tweaking that could possibly accrue some benefit to local assemblers.

South Africa last year saw 15.7% growth in new-vehicle sales, to 597 000 units.

Within this number, however, the percentage of vehicles assembled in-country as completely knockdown (CKD) units made up only 33% of sales – down from 56% in 2006 – this while imports continue to surge ahead.

Barnes says the current level of taxation means that government derives a "huge fiscal benefit" from healthy automotive sales.

The opposite, however, is also true, as a decline in sales, and in local manufacturing, both have fiscal consequences in terms of the revenue flowing to government.

"There is a serious economic consequence for the automotive industry if it is overtaxed and the market is penetrated too aggressively by imported vehicles that don't offer the underlying value addition [local car makers offer]," notes Barnes.

"This industry creates R120-billion worth of direct gross value-added through the seven vehicle assemblers.

"You have to try to balance the tensions between what is good for production, but you also have to ensure that the market is not negatively affected by creating too much protection for the local industry through some form of price advantage that the consumer ultimately has to bear."

Toyota South Africa Motors (TSAM) president and CEO Andrew Kirby agrees with Barnes, describing the ad valorem tax on a R500 000 vehicle as "enormous".

"The question is how to adjust this to see a volume benefit, so that the net income received by the fiscus remains strong. It is possible to do that."

Kirby says it is possible that a 1% price drop can see a 3% increase in sales in some instances.

"So, yes, there is potential, and ad valorem is the obvious way to tweak that. Justin is doing a lot of modelling to see how we can tweak the ad valorem portion of vehicle tax to generate an improvement in affordability. But we need to balance the books for government."

While ad valorem tax started out as a luxury tax, it has since become 'just a vehicle tax', adds Barnes.

Ad valorem was implemented when South Africa's cheapest cars started at a price point of R40 000.

"It had a flat gradient and only started being punitive at R500 000."

Thirty years later, however, many entry-level vehicle prices are now priced nearer to R500 000.

"It has now become punitive," says Barnes.

"Ad valorem must be dealt with. It is highly problematic and anti-developmental. It does not work in favour of the market or [the auto] industry. It needs to be adjusted for us to move forward."

Cohesive Framework Needed Barnes also argues for a more comprehensive, cohesive management of South Africa's vehicle parc.

Policy around local vehicle assembly and imports are handled by the Department of Trade, Industry and Competition, while the Department of Transport handles vehicle registration and the country's fleet management, with National Treasury "collecting the money".

Going forward, this has to be more coordinated, says Barnes.

He says South Africa cannot afford the "massive overtaxing" in the domestic market side, very generous support from government to the local assembly industry through the Automotive Production and Development Programme (APDP...

Energy and chemicals group Sasol is aiming to begin ramping up internal coal production and reducing external coal purchases after its destoning plant reached beneficial operation in December.

CEO Simon Baloyi said the project, which involved a repurposing of the Twistdraai export coal plant, had been completed within its budget of about R700-million and was facilitating the delivery of coal to Sasol's Secunda Operations with a total sinks content of about 12%.

This lower level of rock fragments and other impurities in the material is expected to significantly reduce the damage caused to Secunda's gasifiers by low-quality coal. It is also expected to increase yields from the gasifiers, which provide the synthetic-gas feedstock needed to produce fuels and chemicals at the Mpumalanga complex using the Fischer-Tropsch process.

Sasol is now also leasing out its export entitlement at the Richards Bay Coal Terminal.

"External coal purchases remained elevated in the first half during the destoning plant ramp-up and while coal purchases will continue in the second half to supplement our own production, it is expected to be lower than the first half and to normalise in financial year 2027," Baloyi said.

During the interim period external purchases of 4.9-million tons were required to balance lower own production and support increased coal consumption at Secunda Operations.

CFO Walt Bruns told Engineering News that external purchases would fall in the second half to about 4-million tons and that he expected them to normalise to a yearly rate of between 4-million and 6-million tons.

Previously closed low-quality sections had already been brought back into operation, and the focus was now on increasing internal production volumes, with saleable production expected to be 28-million to 30-million tons in the 2026 financial year.

Bruns indicated that Sasol was aiming to increase that to between 32-million and 34-million tons, but introduce that additional internal supply at costs below the average of R700/t it was spending to source coal externally.

It might also need to expand its destoning operations, but Bruns said there was other coal washing capacity available and that the group could, thus, consider toll processing instead.

HIGHER SECUNDA OUTPUT

Sasol reported weaker financial results for the period on the back of difficult market conditions and impairments, with earnings before interest and tax of R4.6-billion being 52% lower than the prior period.

Nevertheless, it was able to report a 10% period-on-period increase in output at its Secunda Operations to 3.7-million tons during the interim period, owing to improved gasifier performance and the fact that there had been no phased shutdown during the period.

It maintained its full-year production guidance of between 7-million and 7.2-million tons, however, indicating that the repair of its gasifier fleet was still ongoing.

In Mozambique, meanwhile, gas production was 4% lower than the prior period, which Sasol attributed mainly to the expected natural decline in producing wells from its Petroleum Production Agreement (PPA) asset in Pande and Temane.

This was only partially offset by an increasing contribution from the Production Sharing Agreement (PSA) that was ramping up.

"External gas sales in South Africa was 6% lower than the prior period mainly due to lower customer demand resulting from business closures. Internal demand was also lower due to increased pure gas production from coal at Secunda Operations during the first half of 2026," Sasol said.

Combined gas production volumes in 2026 from the PPA and PSA licence areas in Mozambique have been revised to between 0% and 5% below that of the 2025 financial year, from 0% to 10% above 2025, mainly due to delays in relation to the PSA and Central Térmica de Temane (CTT) gas-to-power project.

Sasol booked an impairment of R3.9-billion in relation to PSA during the period, indicating that while the quantum of gas remained unchanged, a r...

Engineering News editor Terence Creamer talks about the recent attention being given to South Africa’s economic reforms.

State-owned freight logistics group Transnet has initiated the first stage of a process to select a private partner for the Richards Bay Dry Bulk Terminal (RBDBT), a key export terminal in KwaZulu-Natal for bulk commodities such as chrome and magnetite.

Transnet has issued a request for qualification (RFQ) document with a deadline of August 31 and intends inviting respondents that are able to demonstrate technical capability, operational experience, financial capacity, and compliance with its requirements to bid into a subsequent request for proposal process.

It will also host a briefing session with prospective respondents on March 19.

The terminal is currently handling some 16.7-million tons of dry bulk yearly, which is below its 18.5-million tons nameplate, and Transnet is aiming to use a private sector participation (PSP) model to potentially expand the terminal's capacity to 26.9-million tons and position it as a leading regional export hub.

Significant investment will be required to modernise and expand the RBDBT, including: the conversion of Berth 702 from import to export use; the development of a new Berth 802, adjacent to Berth 801; upgrades to stockyards, additional tipplers, and conveyor systems to increase throughput and reliability; and the integration of advanced mechanisation and digital technologies to enhance productivity, reduce vessel turnaround times, and lower demurrage costs.

"Given the scale of capital needed and Transnet's current balance sheet constraints, a PSP transaction offers the most practical and sustainable mechanism to unlock investment," Transnet states.

Transnet Port Terminals (TPT) will remain the 51% owner of an envisaged special purpose vehicle, which will be responsible for the financing, operations, maintenance, and performance improvement of the terminal under a sublicensing agreement with TPT.

Transnet has identified chrome and magnetite, which together account for nearly 50% of the terminal's existing throughput, as the primary growth commodities for RBDBT, arguing that their long-term demand outlook is robust owing to global trends in steel production, stainless-steel consumption, and the transition toward low-carbon, green steel manufacturing.

In a statement, Transnet described the issuance of the RFQ as an important milestone in Transnet's Reinvent for Growth Strategy, saying that it signals the organisation's readiness to engage the market to strengthen operational performance and attract private investment.

"Through the PSP process, Transnet seeks to leverage private sector expertise and capital to improve operational efficiency and reliability, while supporting future capacity growth and retaining strategic oversight of the asset."

Transport Minister Barbara Creecy, in her speech in response to President Cyril Ramaphosa's State of the Nation Address, signalled that the process to select a partner for RBDBT would be initiated in February.

She also announced that two other PSP programmes were likely to be initiated in 2026, including the Ngqura manganese export corridor PSP by mid-year, and the Container Corridor PSP by the end of 2026.

Through the Ngqura manganese export corridor concession the aim is to consolidate manganese exports in Nelson Mandela Bay through a new 12-million-ton bulk terminal at the Port of Ngqura, integrated with an upgrade of rail capacity from the Northern Cape to Ngqura.

The container corridor PSP, meanwhile, aims to use a 25-year concession model to mobilise private capital, expertise, and operational capacity to tackle the underperformance of South Africa's primary container logistics corridor linking Johannesburg and Durban.

"There are limited State resources to upgrade our rail network. This makes private-sector infrastructure investment critical," Creecy said.