Merafe begins layoffs as electricity tariff proposal fails to save South African smelters

JOHANNESBURG, Dec 2 (Reuters) - Merafe Resources said on Tuesday its chrome joint venture with Glencore has begun formally laying off workers after an electricity tariff proposal failed to secure the viability of two of its South African ferrochrome smelters.

South Africa holds approximately 80% of the world's known chrome ore reserves, according to Glencore, positioning the country as a key player in global ferrochrome production.

However, problems with power cuts, rising electricity prices and other pressures forced the companies to suspend production at the venture's Boshoek, Wonderkop and Lion ferrochrome smelters in May.

Merafe said in a statement that after talks with South African power utility Eskom, proposed new power tariffs presented on November 28 would allow continued operations only at the Lion smelter.

"Regrettably, the proposal does not provide a sustainable solution for the long-term viability of the Boshoek and Wonderkop smelters," Merafe said.

The two smelters will be placed on care and maintenance from January 1 in the absence of an alternative plan, it added.

Formal retrenchment notices and voluntary severance package approvals took effect on December 1 and remain conditional until December 8, it said.

If no viable solution from the South African government emerges by then, the retrenchments will become binding from December 9, Merafe said.

South Africa's government agreed in June to examine power tariffs in conjunction with the ferrochrome industry, and approved a proposal for a tax on chrome ore exports as part of efforts to stop the decline of the ferrochrome industry.

Chrome producers and ferrochrome smelters have rejected the proposed export tax, arguing instead for competitive electricity tariffs as the primary intervention required to restart idled smelters. 

On Monday, the country's Minerals Council and the Ferro Alloy Producers Association said in a joint statement that electricity tariffs had surged by more than 900% since 2008, making domestic smelters uncompetitive and unprofitable.

"Without an intervention that directly addresses the electricity cost burden, no trade measures, including a chrome ore export tax or quotas, will restore meaningful viability to the country's ferroalloy smelters," they said.

(Reporting by Nqobile Dludla; Editing by Jan Harvey)