Update winding down of ArcelorMittal South Africa (AMSA) operations in Saldanha Bay; Oversight Reports

Meeting report

Briefing on ArcelorMittal South Africa (AMSA)

Mr Hendrik Verster, CEO, AMSA, briefed the Committee on the winding down of the ArcelorMittal South Africa (AMSA) plant in Saldanha. AMSA is the largest steel producer in Africa, currently producing 3 million tons of steel per annum. It produces flat and long products in Saldanha, Newcastle and Vanderbijlpark. It supplies about 75% of the steel used in South Africa and additionally to Sub-Saharan Africa. It creates 120 000 jobs and indirect jobs in the total supply chain. It contributes R600 billion to the Growth Domestic Product (GDP) of South Africa and R15 billion to the fiscus. 

The steel industry is declining, trade wars outside boarders has impacted the global and South African steel industry. AMSA has lost cash and has relied on its parent company to continue operations.

Department of Trade, Industry and Competition (DTIC) briefing

Dr Umeesha Naidoo, Director: DTIC Primary Minerals Processing, and Mr Mohammed Vawda, DDG: DTIC Policy, briefed the Committee. The excess steelmaking capacity of about 440 million tones continues to be the biggest challenge in the global steel sector, particularly considering the slow global economic growth. Increasing price volatility, global trade, margin pressure and rising debt are creating difficult operating conditions for steel makers and steel manufacturers. Developing economies, including South Africa, are disproportionally affected. Primary and value-added products are equally challenged by the surplus supply. The COVID-19 pandemic has accelerated the effects of low demand, over capacity, weak balance sheets and liquidity challenges impacting the viability of an industry that was already in distress.

There are several challenges faced by the steel sector. The DTIC is curbing challenges by implementing Trade support by South African Revenue Services (SARS) reference price system developed for steel products to address low priced imports and an inter-agency working group established to tackle illegal trade. Government uses local procurement to boost aggregate demand.

The Highveld Steel intervention saved a major industrial complex to maintain strategic capability and capacity in primary steel, grinding media and cast products for rail and mining. The DTIC will continue to engage and support all efforts to save Saldanha including participating in the Western Cape Government initiatives which presently includes developing a proposal on re-purposing the plant and setting up an Industrial Park similar to Highveld.

The Steel Masterplan is being curated by the Department. The Masterplan aims to support the medium to long-term growth, development and sustainability of this important value chain. The process involves the development of a turnaround action-oriented plan based on identified competitiveness, improvements in the firms, measures to increase demand, reducing levels of imports and repositioning the industry to be resilient under the intense global pressures. Through the masterplan process, action plans and reciprocal commitments could be secured and implemented with business and labour in stages, in order to move with the requisite urgency to boost growth and support job retention in the value chain. The Masterplan process is expected to be completed within this financial year.

Department of Economic Development and Tourism (DEDAT) briefing

Mr Herman Jonker, DEDAT, briefed the Committee. He stated that DEDAT created a task team in collaboration with AMSA to deal with the winding down in operations at the Saldanha plant. The task team meets weekly and provides quarterly reports to the Minister. The area of Saldanha has experienced an economic rollercoaster first with a draught, energy issues, and AMSA plant winding down and now with COVID19.
 

DEDAT provided support to the community of Saldanha in a community outreach programme where 23 organisations set-up information stations in the Saldanha Multi-purpose Centre. 1 217 people attended the outreach programme and about 14% were AMSA workers. The information stations provided people with information on up-skilling and career opportunities. A second outreach programme was planned for May 2020 however, this has been postponed due to lockdown restrictions. The Community in Saldanha receives further assistance from the Department of Social Development in terms of food parcels and social grants.

DEDAT supports SMMEs through collaboration with Saldanha Bay-IDZ and SBM where a Co-lab was formed to provide a platform where companies can seek assistance. It is currently being used to help companies apply for national relief grants. DEDAT also performed a survey to best understand the assistance needed by companies in the region.

DEDAT is helping AMSA repurpose parts of the Saldanha plant. This is similar to the repurposing of the Highveld Steel Model.

Discussion

Mr A van der Westhuizen (DA) stated that the importance of saving the plant in Saldanha is for the future of South Africa. He asked how the exchange rate changes could change the scenario for AMSA in general and in particular for the Saldanha plant. ‘Were any of the former employees from the Saldanha plant able to benefit from the Temporary Employer/Employee Relief Scheme (TERS) Unemployment Insurance Fund (UIF)’?

Ms N Nkondlo (ANC) stated that the local environment which AMSA operates in, has triggered the Committees interest. She asked what implications AMSA and the DTIC anticipate with the closing of the Saldanha plant. She stated that the impact big companies have on local economies was touched on in the presentation but asked for an answer specific to the area especially now that it is faced by both COVID19 and the winding down of the Saldanha steelworks plant.

Ms Nkondlo asked AMSA to provide numbers for direct and in-direct job losses including the supply-chain, in both percentage and in numbers. ‘What is the relationship between the Steel Masterplan mentioned by the DTIC and the West Coast Industrial Plan mentioned by DEDAT’? After the initial stages of winding down the Saldanha plant, there was provincial intervention and discussions with the DTIC.  ‘Is there an inter-governmental response to the steel situation in particular to the West Coast’?

‘What are the key objectives of the DEDAT task team'? The presentation speaks about keeping SMMEs viable and alive. ‘To-date, has this being achieved’? ‘What costs have been incurred by the task-teams interventions’?

The Chairperson stated that Saldanha Steelworks are important for South Africa considering its footprint. As South Africa is moving towards energy and water security, it is thought that the steel industry would be thriving. The lockdown has exasperated already stressed industries. ‘With the assistance of re-skilling employees, what role has AMSA, DTIC and DEDAT played’? ‘Is it possible to get a list of organisations that have played a part in the re-skilling of workers’? ‘Please provide context of why only 14% of AMSA employees attended up-skilling on the up-skilling outreach programme’?

Electricity, port rates, iron pricing and domestic coal are listed as factors that affect the pricing of steel. Please explain how this has affected the pricing of steel. She asked what interest has AMSA received with regard to the renewable energy as an asset for the future. ‘What is the new project that is being worked on around the inland port which could possibly employ an equal number of employees affected by the AMSA wine down? ‘May DTIC please provide the Steel Master Plan to the Committee’? ‘Please May the South African Revenue Service (SARS) reference pricing for steel please be furnished to the Committee’? ‘Is it possible for the Committee to be invited to the Highveld Industrial Park’? ‘DEDAT states that it is currently assisting employees in the Saldanha Bay Area with energy solutions and other assistance, please provide clarity on what assistance is being offered’? ‘Is Saldanha an economic hotspot? If not, why not’?

AMSA Responses 

Mr Verster stated that a weakened currency has a positive impact as it increases profitability. In Saldanha’s case, local iron and coal are priced in dollar terms which have a high expense as a result of imported coke and pallets. About 70% of Saldanha’s inputs are linked directly or indirectly to exchange rates. The benefits are usually small and dependent on the movement of the currency.

In the last two years, there has been an over-supply in steel globally. In countries such as the United States of America, it provides direct protection of 25% on downstream and sometimes substantially more. In the European Union, there are steel quotas which protect the industry. Countries that typically export steel to developed countries are now focusing on markets such as East Africa. This creates a depressed pricing system in East Africa which will most probably eat up the benefit that could be achieved by the exchange rate. For the restart consideration of Saldanha, there would need to be a change in the cost dynamics.

There was a scheme in place to help employees apply for different positions; assist with creating their Curriculum Vitae, as well as help with UIF applications. Employees have benefited from UIF, it was a different scenario where individuals applied themselves as they were retrenched. AMSA has tried to redeploy people from Saldanha to other plants where there were skill gaps. However, there has been limited success in redeploying former employees as people preferred to stay in the Western Cape.

AMSA has considered the impact of closing down the Saldanha plant. About 600 permanent employees and 500 sub-contractors were directly impacted. AMSA has the numbers for taxes and direct contributions that have been affected since the closing of the Saldanha plant which it will furnish to the Committee. AMSA is supporting education in the area with its ArcelorMittal University which it continues to support. It commits to continue supporting social initiatives in Saldanha from the Vanderbijl plant.

At the Saldanha plant, the minimal high energy consumption costs are far higher than what AMSA competitors pay globally. East Africa does not have the structural factors such as energy cost factors and creates an advantage when competing against China and Russian steel producers. Port charges in South Africa are probably one of the highest in the world. When considering these factors and the lack of raw material competitive advantage, it is almost impossible to effectively compete in the international market.

AMSA is repurposing the non-operational part of the Saldanha environment. AMSA does not want the steel making facilities vandalised or become unable to be reused should the dynamics change in a few years.  A restart could be possible, and the facility needs to remain in usable condition.
 

AMSA is in the bidding process for property, rail sliding and logistical facilities and will discuss this with the Committee in greater detail once the bidding has progressed. As long as Saldanha is being cared for and maintained, it remains a financial burden to AMSA. The quicker it can repurpose some activities, the better.

In terms of renewable energy, it is looking into gas and LPG specifically. There is an interested party, property and EIA completed. The work and legislation have already been done by AMSA over the years.

DTIC Response

Ms Thandi Phele, Acting DDG: DTIC Industrial Competitiveness and Growth, DTIC, stated that the Steel Master Plan is within the development process. The Minister has appointed a facilitator that is putting together documents and a plan moving forward. The DTIC is looking at the kind of programmes that are needed to anchor the Master Plan. There will be a level of inter-governmental processes that will be needed. The Master Plan is developed by the DTIC as a National Government Department and will focus on national programmes. The support the DTIC provides will cut across all provinces and there will be a need to interact and coordinate with the provinces. Economic development departments will provide additional support to their own industries within the provincial structures. The two documents will reinforce each other. The needs of some provinces will be met if they are coordinated nationally. Once it has been signed by the DTIC’s social partners, the documentation will be forwarded to the Committee. It aims to complete the process by the end of the financial year.

AMSA is an important player in the steel industry. From an industrial policy perspective, Saldanha houses good capabilities. Out of the stable steel mills in South Africa, Saldanha is still a new mill with good technology that can be taken forward. The DTIC does not want it to lose its industrial capabilities and cause job losses. This has motivated the discussions between AMSA and the DTIC.

The product itself is also important especially in the roof sheeting industry. It is used for RDP houses and commercial buildings; thus, the product needs to be available for these domestic needs. There is a growing market on the African continent. This is an opportunity to rethink how some products can be repositioned especially products previously made in Saldanha. As the DTIC goes into the implementation of the Continental pre-take area, it must begin to identify the types of projects, programmes and products that are in demand on the continent.

Industrial capabilities and capacity are important to Industrial policy. There is no industrial policy without an industrial base. Sustaining what the DTIC already has is important thus it has worked to bring back the Highveld on stream. Although it is reconfigured it has sustained the capabilities into the domestic economy.

Mr Vawda stated that the Committee is welcome to visit Highveld and they can be in contact in this regard. Dr Naidoo stated that the DTIC continues to engage and support all efforts to save Saldanha and the jobs it creates. It continues to participate in various initiatives including the Western Cape. It is an ongoing endeavour.

DEDAT Response

Mr Jonker stated that in the report produced to the Committee, it shows that out of the 24 companies which DEDAT has engaged with, 17 of the companies gave details regarding the impact the business is experiencing due to the closure of the steel plant. The DEDAT facilitated five of the businesses with applying for assistance. Mr Jonker stated that he did not know if any of the applications were successful. Two or three companies gave feedback that they have used excess capacity for training. They have partnered with Saldanha-IDZ to make training space and capabilities available. The excess capacity was trained in high-tech engineer training. Another company stated that through their retrenchment process, it was able to connect some of their downstream industry clients in the Northern Cape, 70% of those retrenched found jobs through this. The employees were trained in specialised hydraulics which was in demand. It is sad for the West Coast to lose that expertise, but it is encouraging to know that they were able to find work elsewhere in the market.

The cost on SMME support cannot be provided. The DEDAT put together a task-team of about five to six people which included the DTI, business organisations in the area, IDZ and the Municipality. Prior to the down scaling there was much support given to the West Coast Business Development Centre and money was spent on a turnaround for the Centre. The DEDAT is now in the process of getting proper funding agreements for the West Coast Business Development Centre in combination with the collaboration with the IDZ. At the Centre and with collaboration there is about 20 companies per day utilising the facility to do applications for COVID-19 relief packages.

It was not 14% of affected employees that attended the up-skill outreach programme, it was that out of the 1200 people that attended the training 14% were directly affected by the AMSA wind-down. 177 out of the 500 odd workers that were retrenched attended up-skill training. All the support organisations involved in this was listed and this list was provided to the Committee.

There are a wide range of companies that the DEDAT supports. Energy solutions, a fish factory and transport company was amongst a few. The DEDAT is in-touch with larger corporations and through business organisations, the DEDAT is in-touch with small businesses. Some requests are fairly random but the DEDAT tries to jump in wherever they can to provide assistance and ensure businesses can operate smoothly. An example is that DEDAT helped the fish factory reach an agreement with Eskom to have load curtailment rather than load shedding. Another example is a company that needed a large quantity of four-strain flu vaccinations for its employees. There was a national shortage but the DEDAT managed to arrange the vaccinations with a pharmaceutical company and local sales representatives.

Ms Jo-Ann Johnston, DDG: Economic Coordination and Stakeholder Engagement, DEDAT, stated that some AMSA members are fairly new to areas requiring highly skilled portfolios. Some may have felt that they have a better chance of finding alternative employment and did not attend the career event that was set-up. For the employees that were affected by the winding down in operations, three options were available:

1. Find alternative employment;
2. Acquire some form of up- skilling to attain employment in the area; or
3. Create a business

This was established and dealt with in partnership with IDZ and the career event hosted by the DEDAT. A second up-skilling workshop was planned for May 2020 to catch the workers that were unable to attend the first career event. The workshop showed that there is a demand beyond the AMSA crisis. Thus, the DEDAT has been in discussion with the Department of Social Development to roll-out up-skilling workshops and career events across the Province.

Saldanha and the West Coast are not yet considered a COVID19 hotspot. The DEDAT is re-looking at the hotspot strategy for companies in the areas. There are guidelines that have been issued to ensure that health and safety protocols are followed. The guidelines were made in line with the Department of Health’s regulations. Although guidelines are given to companies, it is up to companies to follow the guidelines. For cases where companies are not following guidelines, there is a hotline where people can report the company for non-compliance. The DEDAT investigates to determine whether companies were non-compliant out of negligence or if the guidelines were misunderstood and assists in this regard. In some cases, the informant has an unrealistic expectation of how health and safety should be carried out. In this case the Unions are engaged for assistance. Where there is outright non-compliance, the Department of Labour temporary closes businesses and provides support to ensure the business reaches compliance. 

Follow-up Discussion

Ms Nkondlo stated that the Committee is responsible for oversight and as such it wants to understand the specifics. This will help the Committee identify the role it needs to play to support the Departments. Thus, Ms Nkondlo stated that fewer generalisations should be made and more specifics provided. She stated that she will take up the opportunity to discuss more sensitive matters with the Departments in private.

She asked about the repo closing of the Highveld Steel Plant, as it was heard that the DEDAT was planning a visit. ‘Please may the Committee get clarification on this project and the relationship between the Department and the Highveld Steel Plant’?

She commented that the response from the DTIC is juxtaposed to what the provinces reported. Thus, she believes that the Department is assisting SMMEs, but at this point the Committee wants to hear that there is integration with the National Government and that other spheres of government are working together in responding to issues faced. She asked for more information on the cohesion between the various spheres of Government, the Steel Master Plan and the West Coast Plan. She stated that the Committee should write to the Minister as well as the Provincial Minister regarding a greater effort in integrating the work that deals with steel and the future thereof in Saldanha and the West Coast.

The Chairperson stated that Ms Nkondlo’s call for specificity from the Departments will be taken up in the resolution. The Chairperson stated that she initially asked the Department if the Committee could perform an oversight visit of the Highveld which the Department stated can be arranged in line with the lockdown regulations. With regard to the DTIC and writing a letter to the Ministry, this can be further discussed in the resolutions.

Ms Phele stated that she noted Ms Nkondlo’s comment regarding the need for greater inter-governmental processes. It is a point that needs to be taken forward to ensure that as the Department develops and implements plans the three spheres of government are taken into confidence and work in tandem. The Highveld complex visit can be organised once the COVID-19 restrictions are loosened and the Department will organise this with Management.

The Chairperson asked if the renewable energy Mr Verster referred to was LPG or LMG. She stated that there is a big push for liquid natural gas in the Saldanha Bay Area. ‘If it is LPG, is there any possibility for moving into the LMG sector’?

She said that the winding down of AMSA is within its process, ’what can the DEDAT and the DTIC do on a provincial and national level to try prevent closing down companies within the energy and construction industry without intervening with business processes and operations’? As government, the role is to ensure the environment is created where business in South Africa are striving and can be competitive on a global level.

It was mentioned that 177 employees out of 500 workers that attended the exhibitions was about a 40% margin. It is understandable that not all people will attend the exhibition and skills training because they do not necessarily need to. ‘However, was the Department able to reach the other 60% with communication of some sort that would indicate why they did not attend’?

Mr Jonker mentioned that the Department assisted five companies with applying for finial assistance but was not sure how many were successful in their application. ‘Please may the Department furnish the Committee with the outcome of the applications if any’?

Mr Vester stated that the renewable energy being pursued is LPG and at a later stage, LMG.

Mr Vawda stated that there is a distress fund. He welcomed the Committee to be in contact with him regarding this should they know companies that are in need of such funding.

Mr Jonker stated that the five applications were done through various institutions. 1-2 were done through SIDA for example. Some companies required business mentorship and these applications were not received by the Department but rather external organisations.

Resolutions

1. The Committee requested that the DEDAT provide a letter with the update of the five companies that requested assistance with various application processes.

2. Ms Nkondlo requested that a letter be presented to the Minister of Trade and Industry, Mr Ebrahim Patel, appealing for greater intergovernmental collaboration on AMSA as well as provide insight on the Committee’s observation. The Chairperson suggested that the DEDAT and the DTIC provide a written report on their intergovernmental relations instead. The Chairperson said that she does not think it is necessary to write a letter to the Minister. Mr A van der Westhuizen (DA) supported the Chairpersons notion.

3. The Committee requested an oversight visit to the Highveld Steel Plant.

4. It was asked that AMSA return to brief the Committee on the cost of Maintenance of the Saldanha plant. The Chairperson said that this should be requested in written form as this may be confidential information.

5. A list of organisations that work with the DEDAT.

6. It asked that DTIC provide a copy of the Draft Steel Masterplan.

Draft Report for the oversight visit to Mitchell's Plain

The Chairperson stated that this visit was not exactly an oversight activity as the Committee was invited. The Chairperson went over the report in a page-by-page fashion. The Report was adopted with amendments.

Ms Nkondlo stated that the DEDAT should provide a report regarding a framework or platform it is using for business forums in this area. The Chamber had put forward what they believed its vision should be lobbied by various government departments. She asked: ‘Has the DEDAT made an input in this regard’? This should be considered as part of the resolutions.

The Chairperson stated that over and above writing to the Department of Mineral Resources, the Committee could perhaps request a briefing regarding regulatory processes in South Africa for the Oil and Gas industry.

Draft Report for the oversight visit for Saldanha Bay-IDZ

The Chairperson went over this report in a page-by-page fashion. The Report was adopted with amendments.

The IDZ attempted to increase participation of local contractors within the Construction Industry Development Board (CIDB). Ms Nkondlo suggested a briefing from the CIDB on what the impediments hindering emerging contractors from participating in complex projects were. The Chairperson suggested that this be put in the resolution as a joint briefing with the Committee on Transport and Public Works. The Chairperson stated that perhaps the Department of Transport and Public Works should provide information on the application process and tender process. ‘It seems like these processes are very complicated’. She said that there were many documents referred to by Saldanha-IDZ in their research thus it would be useful for the Committee to have these documents. It was requested that as part of the resolution, the Committee will request the studies from Saldanha-IDZ.

Draft Report for Oversight Visit to Mitchell's Plain

The Chairperson stated that this visit was not exactly an oversight activity as the Committee was invited. The Chairperson went over the report in a page-by-page fashion. The Report was adopted with amendments

Draft Report for Oversight Visit for Saldanha Bay-IDZ

The Chairperson went over this report in a page-by-page fashion. The Report was adopted with amendments.

Meeting was adjourned