Eskom to power up energy-guzzling Chinese metal smelter in Limpopo

To put this volume of electricity into perspective, 1,000 MW is equivalent to one stage of Eskom load shedding, or roughly 60% of the current maximum power demand of the city of Durban (1,600 MW). There are also indications that this power demand will rise significantly as the proposed Sino-South African metal cluster expands.

Responding to questions posed by Daily Maverick more than 10 months ago, the state energy company has now confirmed that it has received an application to provide electricity to the proposed Musina-Makhado Special Economic Zone (MMSEZ) and that despite 290 days of load shedding in 2023 and another 69 load shedding days last year, Eskom believes that it is now “fully capable of supporting the SEZ’s development through a structured, phased approach”.

Signed agreement

When Presidents Xi Jinping and Cyril Ramaphosa signed an agreement in Beijing in 2018 to prioritise a new duty-free special economic zone in Limpopo, the two governments spoke about building a major metal smelting hub in the coal-rich Zoutpansberg area near Makhado, along with a 4,600 MW power plant and cement factory.

But in a speech to the United Nations General Assembly in September 2021, President Xi announced that his country would end its funding for the construction of new coal-fired power plants overseas, a move hailed as pivotal in tackling global greenhouse gas emissions.

MMSEZ chief executive Lehlogonolo Masoga later confirmed that plans for the coal-fired power plant at Makhado had been abandoned, with investors now looking at renewable energy alternatives, including a solar power plant.

Medupi Power Station

But it now appears that the China-based Kinetic Development Group (KDG) will rely predominantly on coal after all, by sourcing electricity from Eskom’s Medupi Power Station for its proposed one million tonne per annum ferrochrome smelter near Makhado.

Last month, Daily Maverick reported that the predicted air pollution and climate change emissions of this KDG smelter were underestimated on a massive scale by Airshed Planning Professionals and Gudani Consulting during a mandatory environmental impact assessment. Critics have also raised questions about whether there is enough water to sustain the expansion of heavy industry in the region.

In response to a list of questions sent to Eskom in November 2024, the power utility has confirmed that it is ready to supply 80 MW in the first phase, using the existing distribution network.

Thereafter, it would implement “a robust integration solution to meet the SEZ’s full development needs”. This would include new transmission lines from Medupi to the Borutho and Tabor substations, and the establishment of the Nzhelele 400/132 kV transmission substation. 

“Once completed, this infrastructure will increase supply capacity to approximately 1,000 MVA (N-0 capacity), with the final end-state capacity to be confirmed. The project is scheduled for completion by 2030.”

On how this might affect the national power supply, a spokesperson said: “Eskom is confident that load shedding will not affect the reliable supply of electricity to the Musina-Makhado SEZ. This assurance is backed by the structural improvements achieved through the successful implementation of the Generation Recovery Plan, which has significantly strengthened the performance and resilience of the national grid.” 

The power utility group said Eskom had met electricity demand for 96% of the time during the 2025 financial year and was now projecting another six months without load shedding.

More recently, it has emerged that, to fast-track energy supply to its ferrochrome smelter, MMSEZ will pick up the tab for building a new transmission substation that will then be handed to Eskom.

‘Discounted rates’

In written responses to the Limpopo provincial legislature, MMSEZ chair Nndwaleni Mphephu said a “self-built” agreement had been concluded in which transmission infrastructure would be handed over to Eskom after completion.

“This will result in MMSEZ receiving discounted rates for the specified period as a form of payback for the contribution toward the capital for the project,” according to Mphephu.

In response to our follow-up questions, however, Eskom has denied that KDG/MMSEZ will receive any “special reduced rate”.

Like any other customer, it said MMSEZ could opt for Eskom to build the transmission infrastructure, along with the design, environmental management, land negotiations, construction, commissioning, project management, and so on.

“The other option is self-build, which the customer (MMEZ) opted for in this case, to procure and construct the required plant according to the given Eskom standard design and specifications; thereafter commissioning the customer handover (of) the plant to Eskom according to the agreed terms and conditions.”

Eskom said the ferrochrome smelter would be placed on the standard Megaflex retail tariff approved by Nersa, although it would receive a once-off cost reduction for load-related capital works.

Neither KDG nor the Limpopo Department of Economic Development, Environment and Tourism have responded to our questions on whether KDG/MMSEZ are in talks with the government for additional discounts in terms of Negotiated Price Agreements (NPAs) or other special deals.

However, local energy analyst Chris Yelland reported recently that South Africa’s existing ferrochrome smelters are edging closer to securing special tariff relief for electricity.

‘Increased costs’ for standard electricity users

Yelland, who is managing director of EE Business Intelligence, said that during a briefing on 26 September, Electricity and Energy Minister Kgosientsho Ramokgopa confirmed that the new electricity deals could go beyond existing NPAs by providing further significant concessions.

Yelland suggests that while Eskom probably does have sufficient energy available to provide 1,000 MW to the new Makhado hub, metal smelting remains energy-intensive relative to employment benefits.

“Smelters use up a lot of energy, without creating a whole lot of jobs – and this can also eat up (Eskom’s) available power capacity quite quickly.”

He further notes that electricity discounts in special pricing deals for ferrochrome and aluminium smelters also result in increased costs to standard electricity customers, taxpayers and the remaining economy. 

“So, questions remain as to whether such relief can be sustained in a power-constrained, high-cost environment.” DM