Coega Steels says it will only decide on its next steps once it has been formally served with court papers following the council’s decision to challenge and set aside the lease of a transformer to the company.
The lease sparked outrage among councillors at a meeting last week when the proposal was brought to the meeting for rubber-stamping.
Former acting city manager Ted Pillay and mayor Babalwa Lobishe had already signed a memorandum with the company in September and the transformer was delivered.
However, a legal opinion obtained by the municipality recommended that the decision be set aside as it contravened the Municipal Finance Management Act regulations.
The regulations require that for a municipality to grant a right to use or control an asset worth more than R10m, a public participation process must first be done.
The council must then approve the decision.
In a statement on Friday, the company said it had not received any indication from officials that the lease process was being fast-tracked or handled outside the normal legal framework.
“At the time, and until approached by the media, Coega Steels had no reason to believe that the lease of the transformer was irregular or illegal,” it said.
“It is important to emphasise that Coega Steels was not, and is not, privy to the municipality’s internal administrative or legal vetting processes.
“Our engagement has been strictly in accordance with the guidance and procedures communicated to Coega Steels by municipal officials.”
It said the municipality had been approached as a last resort after it became clear that Eskom transformers were a different vector.
“The industrial-scale transformer in question is not a standard, off-the-shelf item, and given its cost, is not held in stock by industry.
“These units are custom-built and typically held as spares only by a few municipalities or Eskom.
“At the time, Coega Steels explored all available options, given the limited availability of the type of transformer that blew.
“Unfortunately, there were no suitable transformers of similar specifications available in the private sector despite extensive efforts.
“As a last resort, Coega Steels approached the municipality, as its customer, to request the temporary lease of a suitable transformer held in stock by the NMBM.
“Had the request been declined, we would have proceeded to modify our systems to accommodate a transformer from Eskom, albeit at a significant cost, time and risk to the commercial viability of our operations.”
Coega Steels said the metro was approached out of necessity.
“As a customer of the municipality, after the transformer failed, Coega Steels naturally approached the metro when it became apparent that a suitable replacement transformer was not commercially available in South Africa.
“Given the urgency of the situation, with production halted and hundreds of jobs at stake, Coega Steels submitted a formal request to the municipality outlining the potential economic impact.”
Coega Steels appealed to the municipality, saying its failed transformer had brought production to a halt and was costing the company about R700,000 a day.
This directly and indirectly affected its clients, suppliers and about 300 employees, many of whom were placed on short-term rotational work as a result.
Coega Steels further indicated plans to expand its operations by the end of 2025, which would see its annual electricity bill rise sharply.
Between January and July 2025, it paid R141m to the metro, and this was estimated to rise to R360m.
The R25m transformer was procured by the city to provide backup for the Swartkops and Greenbushes substations.
It was being used at another substation as part of an ongoing project.
The lease deal is a R250,000 per month rental for a year.
“The municipality will earn approximately R3m in rental income from the lease and continues to benefit from the sale of electricity to Coega Steels, which yields an estimated annual markup of around R30m for the municipality.
“We emphasise that Coega Steels has already placed an order for a new, replacement transformer,” the company said in the statement.
“Once it is delivered and installed, expected within the next five to six months, the leased NMBM transformer will be returned to the municipality with gratitude.
“We believe this arrangement, therefore, supports both industrial productivity and municipal revenue — a mutually beneficial outcome.
“The company has already invested significant resources in transporting, installing and commissioning the NMBM transformer at its premises.
“Coega Steels can only consider its position relative to such a challenge once it is launched and Coega Steels is served with legal papers.
“Until then, it is impossible to comment.”
The Herald
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