‘Jobs on the line’ — Coega Steels explains emergency lease of NMB metro transformer

Coega Steels, the company that was leasing a municipal transformer to continue its steel operations in Nelson Mandela Bay, said late last week that it was unaware of any problem with the agreement.

Also read: NMB’s lease of R25m transformer to Coega Steel heads for high court

From both Coega Steels’ comments and a report provided to the mayoral committee, it was clear that the company – one of the metro’s highest energy users, buying electricity worth R200-million a year from the municipality – needed urgent assistance after the failure of its transformer, with six hundred jobs on the line.

The metro runs at a deficit of R1.58-billion, with non-revenue electricity losses estimated at R1.1-billion, the biggest contributor to the city’s financial troubles.

At the same time, high export tariffs imposed on South Africa by the Trump administration have plunged the metro, South Africa’s automotive hub, into crisis.

Coega Steels melts scrap metal into billets (a quantity of steel).

Read more: Nelson Mandela Bay metro runs up a loss of R1.58bn — and hasn’t even paid its phone bill

“Until approached by the media, Coega Steels had no reason to believe that the lease of the transformer was irregular or illegal,” the company said in a written answer to a request for comment.

“As a customer of the Nelson Mandela Bay 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.

‘Urgent situation’

“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.

“Following this, a Memorandum of Understanding was concluded and, subsequently, a lease agreement was signed for a transformer that had been in storage as a municipal spare (we understand unused since 2018).

“The municipality will earn approximately R3-million 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 R30-million for the metro,” the company’s reply said.

“Notably, the lease is of short duration until the replacement transformer has been procured,” the answer concluded.

In a report to the mayoral committee, former acting executive director for electricity and energy Tholi Biyela explained the reasons for his decision to lease the transformer to Coega Steels.

“This intervention has become necessary following the unexpected failure of Coega Steels’ existing transformer, which supplies power to their operations. Coega Steels is the municipality’s largest industrial consumer of electricity, contributing significantly to both revenue generation and the local economy through employment and industrial output.

According to the report, Coega Steels formally addressed correspondence to the then acting city manager, Ted Pillay, on 21 August 2025, requesting urgent assistance from the municipality, following the failure of its transformer on 14 August 2025. At the time, the company was in the process of restoring its network. 

Pillay said there was a transformer at the Sonop Substation that could be made available.

‘High risk’

The report was clear that the transformer failure at Coega Steels had put the municipality at high risk because it stood to suffer substantial revenue losses from electricity sales.

“Leasing the available transformer will provide an immediate, practical solution to stabilise supply while longer-term alternatives, such as repair or procurement of a replacement transformer, [are] being finalised”, the report said. 

Coega Steels is the municipality’s largest single electricity customer, directly connected to the 132kV high-voltage network. Between January and December 2024, it bought R200-million worth of electricity from the municipality, and in the first seven months of 2025, the amount was R141-million.

After the transformer broke, the company was losing R700,000 a day. 

“This translates to a projected loss of around R21-million per month should the electricity supply remain disrupted,” the report said.

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 After the transformer failed, about 300 workers were put on short time and a rotational schedule. By August, the company indicated that all of its 600 workers would be put on short time if a suitable replacement transformer could not be found in time.

“Such a development would not only have a severe impact on the livelihoods of employees and their dependents, but would also carry broader socioeconomic implications for the … region, including reduced household income, decreased local economic activity and potential reputational risks for the municipality in its ability to support and safeguard critical industrial operations.” 

There were also fears that downtime at Coega Steels would significantly affect other companies in the Eastern Cape, including scrap metal suppliers within the Eastern Cape and across the country, logistics service providers and transporters, and billet buyers. 

‘Practical solution’

According to Biyela’s report to the mayoral committee, the Sonop Street transformer was not carrying any load at the time of the request. 

“Leasing this transformer to Coega Steels therefore represents the most immediate and practical solution to restore supply and mitigate ongoing operational and financial losses while longer-term repair or replacement plans are being finalised, ”the report said. 

It said that if any of the operational transformers failed, the leased transformer might need to be recalled immediately to maintain the reliability and stability of the municipal electricity network.

“Based on the assessment to date, there are no major risks associated with temporarily relocating the transformer to Coega Steels for this urgent requirement, provided that contingency measures are in place to ensure rapid redeployment if an emergency arises at Greenbushes or Swartkops substations,” Biyela’s report continued.

Municipal legal services had advised that a council resolution was required to formally grant the municipality the authority to conclude the proposed agreement with Coega Steels. In addition, a detailed formal instruction from the Electricity and Energy Directorate had to be provided before attending to the matter. 

This was to ensure that the leasing arrangement was fully compliant with municipal governance, legal, and procurement requirements and provided a clear mandate for the municipality to proceed, while safeguarding its legal and financial interests. 

“The Budget and Treasury Directorate acknowledges the urgent financial pressure faced by Coega Steels, as outlined in their correspondence, which further impacts the municipality’s already dwindling revenue base.

“However, the Budget and Treasury Directorate raised several concerns regarding governance and legal protection. These included that there was no existing policy framework or by-law to govern similar situations. There was no approved fee structure for this type of transaction. Budget and Treasury advised that the matter be brought before council as an urgent item,” the report continued.

There was no mention of the issue raised by the leader of the DA in the Nelson Mandela Bay caucus, Rano Kayser, that a public participation process was required before leasing metro property of more than R10-million. The transformer is worth R25-million. DM