Integrated Annual Report 2014
Maintaining our licence to operate
Key to this report.

Maintaining our licence to operate

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We are a proudly South African business that places the highest value on executing our responsibility to sustain and create natural, human and social capital.

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Engaging with government and local communities

Our board and management are acutely mindful of our company’s place in the South African economy and society.

We are committed to doing everything within our power and ambit to bring to reality the objectives of the National Development Plan of 2011 and to realise the inclusive, prosperous society which that plan envisages.

In discharging these responsibilities, we interact consistently and proactively with a broad range of stakeholders. These stakeholders include many individuals as well as the elected representatives of the communities in which we make, transport and sell our steel.

In the government sphere we communicate constantly with the executives of local and district municipalities, provincial and national government as well as the organs of these spheres of government.

Government at all levels enforces compliance with environmental and other legislation and grants us the permits and licences we need to operate. Policies, including those relating to issues such as energy tariffs, carbon tax, environment, the regulation of imports and exports, and broad-based black economic empowerment, have a direct impact on our business.

Government leaders take a keen interest in the pricing of steel products, the role ArcelorMittal South Africa plays in the beneficiation of iron ore and the development of the downstream steel industries and manufacturing sectors that consume steel. We are equally committed to fostering a vibrant, growing, job-creating downstream industry as is government; without domestic sales of steel products we have no ability to create sustainable value.

Addressing government’s interests in our company and its economic impact is a key management priority. The head of corporate affairs is a member of the executive committee and regularly communicates issues raised by, and interactions with, government representatives with the company executive and the board, notably through the social and ethics committee. This committee is regularly appraised of material issues of concern to communities in proximity to our plants.

This year a dedicated task team, headed by the CEO, was set up to improve government relations. Four working groups were established and meetings held with the departments of Economic Development and Trade and Industry as well as the Industrial Development Corporation and the Competition Commission. Topics discussed included pricing solutions, enterprise development, government’s infrastructure programme, anti-trust issues and local competition, and imports and potential tariff protection. Through ongoing dialogue with government, we aim to shape outcomes on a range of issues that will secure our licence to operate and ensure our ability to contribute towards meeting the goals of the National Development Plan. These issues include:

Iron ore beneficiation, steel supply and pricing

The long-term cost-plus supply agreement reached with Kumba Iron Ore in November 2013 appears to have reinforced a belief within the departments of Trade and Industry and Economic Development that ArcelorMittal South Africa should be compelled to sell its products domestically at so-called developmental prices. We remain extremely receptive to any suggested intervention that may increase the competitiveness of South African manufacturing as our sustainability is inextricably tied to that of our customers: steel-consuming manufacturers and fabricators.

We agree that it is now necessary to have in place a more sustainable steel pricing mechanism, one that can be used throughout the cyclical periods of steel demand, that ensures our company is sustainable and able to invest and that we can foster downstream beneficiation. We are continuing to engage government on this key issue and hope to reach agreement in 2015.

Our company has not returned positive value to shareholders for ten successive quarters and has not declared a dividend since 2011. Until such time as we are able to create sustainable financial value, sub-economic pricing levels would threaten our business’s viability in its present form.

This year we continued to engage government on the issue of subsidised imports from, in particular, China. (In the year to end-November, global Chinese steel exports climbed 47% to a record 83.6 million tonnes.) Steel products exported by Chinese manufacturers are subsidised by that country’s government and, without attracting import tariffs, are sold in the domestic market at what we believe are unfair prices and are generally of inferior quality.

We and other parties, all members of the South African Coil Coaters’ Association, this year jointly filed an application for the introduction of a 10% import duty on galvanised and colour-coated products. These applications, which were supported by detailed import information provided by the South African Iron and Steel Institute, were submitted to the International Trade Administration Commission of South Africa for evaluation and initial approval before the next level of endorsement, which is from the Department of Trade and Industry.

At year-end a similar application relating to wire rod, made earlier in the year, was in the final stages of being resubmitted. These applications, which are aimed at facilitating further investment by domestic industry, demonstrate the extent to which our ability to create financial capital is directly related to our social capital, especially the strength of our social capital in the public sector.

ArcelorMittal South Africa’s sustainability, we continue to argue, is essential to employment-enhancing economic growth and to the successful implementation of the National Development Plan. The rollout of government’s infrastructural spending programme is a key opportunity not only for our business but for many of our customers. A more concerted infrastructural investment drive will be critical to alleviating the profitability challenges experienced not only by ourselves but by other South African steelmakers. While we await greater investment in domestic infrastructure, we are actively engaging with various authorities on finding ways in which we can support and benefit from the Programme for Infrastructure Development for Africa (PIDA), recently announced by the African Union Commission, NEPAD and others.

Competition Commission and Tribunal

Five cases have been before the competition authorities for several years. These all relate to legacy issues. This year we sought to engage openly and proactively with the competition authorities to expedite the resolution of these issues which continue to divert management attention from issues of more pressing impact on our business’s sustainability. This interaction will continue in 2015 in the hope of a speedy resolution of the issues.

LINK For more on how we engage our stakeholders, click here.

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Broad-based black economic empowerment (B-BBEE)

Our commitment to meaningful transformation is not reflected in our B-BBEE rating which this year stood at Level 7 under the old codes. Towards the end of 2014 we began implementing a farreaching, concerted programme to improve all aspects of our B-BBEE score, under the new codes, that are under local management’s control.

We aim to align our employment profile with that of the national economically active population. A new Employment Equity Plan, submitted to the Department of Labour in Q1 2015, makes clear our commitment to employment equity.

+ Externally assured.

Focusing on preferential procurement and supplier development, in 2015 we aim to purchase goods and services to the value of approximately R7.2 billion from qualifying enterprises – more than doubling current levels.

We will also invest extensively in enterprise development (in 2014 ArcelorMittal South Africa earned no B-BBEE points for enterprise development) and put in place + policies and recruitment procedures to overhaul our performance on employment equity.

Combined, these measures will, under the recently gazetted new codes of good practice, give us a Level 5 compliance rating, dropping to Level 6 because of our current challenges in terms of the ownership component of the codes. The issue of ownership will be addressed subsequent to our making substantial progress on other pillars of the codes.

While we underperformed on enterprise development, in 2014 the company obtained 19.5 out of a possible 20 points on the B-BBEE Codes of Best Practice for preferential procurement – exceeding the year’s target of 17.63.

In 2014 a far-reaching enterprise and supplier development strategy was formulated and approved by management. The strategy consists of four key elements. The first of these elements is a restructuring of our enterprise development policies and procedures and the conversion and restructuring of certain ArcelorMittal South Africa assets to assist the enterprise development drive.

Beginning in 2015 workshops explaining business opportunities will be held in our affected local communities in a bid to restore trust and to facilitate meaningful communication. An enterprise development hub and a technical hub as well as SMME warehousing are some of the undertakings that will be pursued in 2015, all in local communities and affecting local businesses.

Various projects, including an initial six areas of opportunity, have been identified for outsourcing while enterprise development will target qualifying enterprises offering non-core services in eight identified areas. An additional eight core supplier areas have been identified for supplier development. These include fuel, raw materials, line spares and equipment and maintenance.

“Local” suppliers are those within a 50km radius of an ArcelorMittal South Africa business unit.

A breakdown of our spend by significant locations of operations in 2014 appears in the following table: (Note: As Vanderbijlpark and Vereeniging are located within the same geographical area they are grouped together. Procurement spend reported is for the company as a whole and not just by business unit. So, for instance, a supplier based in Vanderbijlpark may supply goods and services to the Vanderbijlpark and Vereeniging as well as the Saldanha and Newcastle units. In such a case the procurement is allocated to “Vanderbijlpark and Vereeniging”.

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Execution against our B-BBEE and social investment strategies and targets is managed by dedicated teams, including professionals located at each of our operations and head office. The general manager: corporate affairs, who has overall responsibility for monitoring B-BBEE and CSI, is a member of both the management and executive committees.

The remuneration, social and ethics committee receives regular reports from the executive committee and those tasked with B-BBEE, enterprise and supplier development. An interim B-BBEE subcommittee of the board was established in 2014 to monitor and drive B-BBEE initiatives.

Socio-economic development

We have traditionally achieved a full five points under the B-BBEE codes of good practice for our investments in local communities and economies. This will continue to be the case in future.

In 2014 the JSE Securities Exchange confirmed that ArcelorMittal South Africa again met its criteria for inclusion in the exchange’s Socially Responsible Investment (SRI) Index.

Enriching local communities through social investment initiatives is a key pillar of our corporate responsibility ethos. Four of the 12 policy areas covered by the ArcelorMittal Human Rights policy relate to communities and include topics that range from resettlement to access to land and water. The majority of our corporate social investment projects are channelled through the ArcelorMittal South Africa Foundation. We work in close collaboration with the ArcelorMittal Foundation at a group level and are guided by group policy.

In developing a relationship of transparency and trust with our local communities, we are guided by the ArcelorMittal external stakeholder engagement procedure that outlines the minimum community engagement requirements. The ArcelorMittal South Africa Foundation is dedicated to encouraging long-term economic growth and entrepreneurship in local communities. We do this through investment in projects that will make the most meaningful and sustainable difference to the lives of our community. Investment is targeted at the areas immediately surrounding our operations. These include the communities of Sharpeville, Bophelong, Boipatong, Vanderbijlpark, Vereeniging, Atteridgeville and Mamelodi in Gauteng; Vredenburg and Langebaan near our Saldanha Works; and Newcastle, Madadeni, Osizweni and Blaauwbosch close to our Newcastle plant in KwaZulu-Natal.

While each of our communities has unique social development needs, they face the common challenges of poverty, unemployment, HIV/Aids and its associated social impacts, and lack of access to education, healthcare and housing facilities. Our social development projects are directly informed by these needs, and are aligned to our three focus areas of education, health and social upliftment.

All of our major business units have implemented local community engagement programmes and corporate social investment strategies. These programmes and strategies are overseen and implemented by dedicated resources based at these business units, a reflection of our appreciation of the extent to which ArcelorMittal South Africa, as a major employer and industrial operation in these communities, can have both positive and negative impacts on communities living in proximity to our plants. Potentially negative impacts include pollution and the consumption of limited local natural resources including water. Our operations can positively impact local communities through employment and procurement opportunities, support for education and health and wellness and the provision of infrastructure.

As in previous years, in 2014 we worked closely with the departments of Education, and Science and Technology to ensure the ongoing success and impact of three science centres for high-school learners in Sebokeng, Newcastle and Saldanha, R11.2 million being spent this year on the running and staffing costs of these centres. This year three mobile libraries, costing R150 000 each, were donated for use by schools and learners in Sharpeville. A library was also donated to a deserving school in Newcastle, at a cost of R110 000.

This year we partnered with the North West University to train 22 individuals representing 10 non-governmental organisations in our communities to offer them practical training in sustainable business practices so that they can create and maintain viable employment opportunities. At the end of the six-month Sustainability Accelerator Programme training attendees are expected to obtain a Level 5 NQF qualification.

Between March and December 2014 the NGO GetOn trained 574 previously disadvantaged people in courses and workshops which aim to give them skills that are valued in the workplace. Operating out of a building which our Pretoria Works operation made available to GetOn, the initiative has enjoyed conspicuous success: of the 574 trained in 2024, 320 underwent job-specific training. Of this latter number, 62% were economically active in February 2015. According to GetOn research, 86% of students placed in employment between March 2013 and December 2013 had been economically active for a 12-month period.

In 2015 ArcelorMittal Pretoria Works intends to make another space available to GetOn, for training students in furniture manufacturing.

Liaising closely with the Gauteng Department of Health, in 2014 ArcelorMittal South Africa facilitated the donation of five 40-foot container with state-of-the-art medical equipment and consumables, each worth in excess of USD400 000 and donated by the international Project C.U.R.E charity. The containers will be used to treat patients at five clinics in the Sedibeng District Municipality and build on our donation, in 2013, of a R13 million wellness centre at the Sebokeng Hospital.

This year we made some R800 000 (2013: R18 million) available to 28 deserving NGOs and projects through the ArcelorMittal South Africa Foundation’s Impilo Social Grants programme.

In Bophelong and Boipatong we have, to date, re-roofed over 3 000 houses with corrugated steel roofs. This year 282 houses were re-roofed at a cost of R2.4 million.

In Newcastle, 11 international and 40 local employees volunteered to build six “Protea” houses. Six local employees volunteered their leave time to undertake social work in six countries.

While we continue to focus on projects that will have maximum social and economic impact, particularly in our local communities, our recent financial performance has limited our ability to fund deserving projects. This year our corporate social investment spend amounted to R16.3 million whereas the previous year it was R37.4 million. This was the direct result of our ongoing failure to generate profits, our ability to create social capital being largely determined by our performance on enhancing our financial capital. An indication of our cautious optimism for the company’s financial outlook is the fact that in 2015 an amount of R30.5 million has been budgeted for CSI projects.

The manager of the ArcelorMittal South Africa Foundation reports to the head of corporate affairs who serves on the executive committee. All business units have dedicated corporate social investment officers.

ArcelorMittal South Africa has a considerable social impact through employment. In 2014 68% of new recruits were from communities surrounding our operations. Some 70% of all employees live in local communities.

Awards

In 2014 ArcelorMittal South Africa received the following awards:

  • Best contributor to local content in the wind energy sector by the SA Wind Energy Association
  • PMR Golden Arrow Award: Companies, institutions or NGOs during the past 12 months doing the most to enhance and promote the production and manufacturing of local goods and products in Sedibeng; doing business in the most ethical way – First overall PMR Golden Arrow Award: Companies/ institutions doing the most to fight HIV/ Aids – First overall
  • PMR Golden Arrow Award: Companies/ institutions doing the most to clean the environment/doing the most to promote sustainable development – First overall
  • PMR Golden Arrow Award: Companies/ institutions demonstrating exceptional managerial and corporate governance qualities – First overall
  • PMR Golden Arrow Award: Companies/ institutions doing the most to enhance the interests of women – First overall

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Being environmentally responsible

The very nature of the steelmaking process, anywhere in the world, implies a material environmental impact. ArcelorMittal South Africa is committed to minimising this impact while fulfilling the requirements of increasingly stringent legislation.

Steel remains, and is certain to remain, a mainstay of economic development and social upliftment. It is a product that is essential to housing, transport and infrastructural development. The production of this core input for social upliftment necessarily entails an environmental impact in terms of raw materials and energy consumed as well as direct and indirect emissions, a fact that is mitigated, to a material extent, by recycled steel constituting as much as 19% of steel produced in ArcelorMittal South Africa’s production processes.

Our environmental policy

The ten principles of our group’s environmental policy, which guides our stewardship of the environment, are:

  • Implementation of environmental management systems including ISO 14001 certification for all production facilities;
  • Compliance with all relevant environmental laws and regulations and other company commitments;
  • Continuous improvement in environmental performance, taking advantage of systematic monitoring and aiming at pollution prevention;
  • Development, improvement and application of low impact, environmental production methods taking benefit of locally available raw materials;
  • Development and manufacture of environmentally friendly products focusing on their use and subsequent recycling;
  • Efficient use of natural resources, energy and land;
  • Management and reduction, where technically and economically feasible, of the CO 2 footprint of steel production;
  • Employee commitment and responsibility towards environmental performance;
  • Supplier and contractor awareness and respect of ArcelorMittal’s environmental policy;
  • Open communication and dialogue with all stakeholders affected by ArcelorMittal South Africa’s operations.

Our ISO 14001 certified environmental management systems are based on these core principles. This year all of our operations succeeded in retaining their ISO 14001 environmental management systems certification.

We are also bound by environmental legislation including the National Environmental Management; Air Quality Act 39 of 2004; the National Water Act, the National Environmental Management Waste Act 59 of 2008; and the National Environmental Management Act 107 of 1998.

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The group manager: environment is responsible for overall environmental management and compliance and is a member of the ArcelorMittal South Africa management committee. The group manager and the corporate energy manager share responsibility for carbon and climate change issues. Both positions report to the chief operating officer; until 2014 the group manager: environment reported to the CEO. The corporate: environment department reports to the company’s SHE committee on environmental activities, targets, policies and outlook. The committee raises material environmental issues with the board.

In 2014 we incurred capital expenditure of R63 million (2013: R350 million) on mitigating our environmental impact. In recent years our poor financial performance has limited our ability to do more to positively mitigate our negative environmental impacts. Despite this limitation, we continue to make substantial strides to address various legacy environmental concerns. Since 2004 we have spent R1.9 billion on environmental capital, the bulk of it (over 90%) on air emissions compliance and water management. Some 20% of the company’s R1.6 billion capex budget for 2015 is targeted to be spent on environmental enhancements.

Our most material environmental issues in 2014 were:

  • Proposed carbon tax and climate change
  • Emissions to air
  • Water management
  • By-product utilisation
  • Rehabilitation of legacy sites
  • Handover of environmental risk assessment as per the PAIA court appeal ruling
  • Energy efficiency

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Carbon tax and climate change

An updated carbon tax policy paper, published by National Treasury in 2013, proposed a carbon tax of R120 per tonne of CO emitted above a certain threshold. This year it was announced that the implementation of the tax had been postponed from 2015 to 2016.

Based on our 2013 steel production of 5.1 million tonnes, estimated Scope 1 carbon emissions of approximately two tonnes per tonne of steel, and an assumed 75% exemption, a carbon tax would add at least R525 million to our annual costs. This cost burden, which would be additional to the approximately R200 million spent annually over the past decade by ArcelorMittal South Africa on environmental impact mitigation, would make our business, in its present form, unsustainable unless the tax was passed on to customers. One major factor is that our international competitors do not operate in regimes where such taxes are applied. Cleaner methods of producing steel that would materially reduce carbon emissions by the percentages called for by climatologists simply do not exist at present, a fact that has been proactively and repeatedly communicated to various government departments and agencies.

It is now hoped that efforts to reconcile the terms of the envisaged tax and the Department of Environmental Affairs’ proposed Desired Emission Reduction Outcomes framework could potentially result in more realistic, more sustainable outcomes.

Emissions to air

Our most significant air emissions are particulates. Overall point source particulate emissions remained unchanged this year at 0.51kg/tonne of liquid steel (2013: 0.50kg/ tonne of liquid steel) – a reduction of 239 tonnes in absolute terms. This year SO emissions reduced from the previous year’s levels by 14.75%. Scope 1 CO increased from 2013 to 2.30 tonnes per tonne of liquid steel (2013: 2.19 tonnes of CO 2 per tonne of liquid steel) while Scope 2 CO intensity rose from 0.72 tonnes per tonne of liquid steel to 0.79. These increases were ascribable to reduced steel output relating tthe Newcastle blast furnace reline.

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This year a comprehensive desulphurisation plant, together with a dust abatement system, was completed at the Newcastle steel plant, at a cost of R120 million, which had the effect of capturing particulates escaping from the steel plant. Also commissioned this year was an R88 million system to capture fugitive emissions at Vanderbijlpark’s Blast Furnace D stock house bag house.

By August all facilities had received atmospheric emissions licences. In that month, however, Newcastle Works received a pre-compliance notice from the Department of Environmental Affairs (DEA). This notice relates not only to atmospheric emissions but also to water and stormwater management as well as waste management and alleged soil and groundwater pollution.

Vereeniging Works received a Green Scorpions inspection report from the DEA relating to similar issues. In addition, a pre-compliance notice was issued to Vereeniging Works by the Gauteng Department of Agriculture and Rural Development in November 2014, which report related mostly to minor dust and spillage issues.

In later 2014 the company received notification from the South African Human Rights Commission that an investigation had been launched regarding the “gross violation of environmental laws and human rights by ArcelorMittal’s operations in Vanderbijlpark”. This investigation was launched following the submission of a report, “Steel at any cost” by the Bench Marks Foundation to the commission. A response was submitted in December. Discussions with the commission on their investigation were ongoing in early 2015.

Water management

In November a zero-effluent discharge (ZED) project at Newcastle Works was completed after a lengthy R430 million project with full commissioning to be completed by the end of Q1 2015. This amount was in addition to considerable investments which had previously resulted in the achievement of ZED status at Saldanha and Vanderbijlpark. The Newcastle ZED project entailed the implementation of the most advanced ZED technologies and processes available.

Regrettably, Vanderbijlpark lost its ZED status after repeated discharges of process water into the stormwater collection system and water treatment capacity constraints during the year. This status was subsequently reinstated. An amount of R90 million was approved for effecting remedies with preliminary projections indicating that Vanderbijlpark’s ZED status could be sustained during 2015.

In February 2014 a leak of hydrochloric acid into the Leeuwspruit was detected at our Vanderbijlpark Works. The incident was promptly and fully reported to the authorities, all water discharges being immediately blocked and the affected stream thoroughly flushed with clarified Vaal Dam water. This incident was also investigated by the Green Scorpions, who made no further findings relating to the incident.

Fresh water intake per tonne of liquid steel rose this year at Vanderbijlpark because of a lessened water-recycling capability caused by technical problems. The Newcastle reline resulted in a higher water-usage figure per tonne of steel because, while long steel production declined, many water systems remained operational. Newcastle’s water usage per tonne of steel also increased because water systems were refilled following the resumption of full operations. Compliance with the National Water Act remains an ongoing challenge given the nature of our operations and current capital constraints.

By-product utilisation

An internal review of the measures and expenditure required to comply with the newly published Waste Classification and Management Regulations indicated that it would take the company three years to reach full compliance within the timeframes provided for in the legislation. At year-end, processes to achieve such compliance were all being implemented according to projections.

The company remains committed to reducing its waste disposal quantities and monitors the percentage of by-products produced that are landfilled. By-product utilisation has been stagnant in recent years as a result of subdued activity in the construction industry. At year-end the company was actively pursuing new applications for its by-products, some of which were considered to hold significant potential.

Our most established by-product, granulated blast furnace slag maintained its position as a sought-after raw material within the cement industry where it is mainly used as a cement extender. Competing materials such as fly ash are, however, also making inroads in this application. Steelmaking slag is used for road construction purposes and the company, together with a service provider, is currently developing a new concrete-based application for road surfacing in which steelmaking slag will be the major aggregate. Superior strength qualities can be attained and the first trial roads will be constructed within Vanderbijlpark Works in 2015. Costs relating to the new road construction material will be significantly lower than those for normal concrete.

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Rehabilitation of legacy sites

We continue to invest in the rehabilitation of “legacy sites” that carry risk of soil and groundwater pollution.

Good progress was made at our Vanderbijlpark Works on rehabilitation; over 400 hectares of disturbed land (including legacy sites) have been rehabilitated and/or remediated to date. This rehabilitation process significantly reduces fugitive dust emissions.

Remediation of Maturation Pond number 2 was completed in 2014 and the plan is to address the last remaining pond in this old storage system (Maturation Pond number 1) during 2015. These ponds were previously used for the storage of coke making effluent. Phase 3 of the capping of the old disposal site is earmarked for completion in 2015; the only uncapped area that will then remain is an area of 47ha from which slag is being recovered and sold as an aggregate.

Promotion of Access to Information Act court action

In 2012 the Vaal Environmental Justice Alliance (VEJA) and the Centre for Environmental Rights (CER) sought access to the Vanderbijlpark environmental risk assessment report and Green Scorpions documentation relating to the closure of the Vaal Waste Disposal Site. The application was made in terms of the Promotion of Access to Information Act.

The assessment, which dates from 2002, had been researched and written for internal risk identification purposes. We took the view that the detailed results of an audit of this kind were a confidential matter. Furthermore, our view at the time was that significant legislative changes since had led to more stringent environmental controls, thus rendering the risk assessment outdated and irrelevant. For these and other reasons, ArcelorMittal South Africa refused VEJA’s request.

In response, VEJA resorted to the South Gauteng High Court which, in 2013, ruled against ArcelorMittal South Africa. Leave to appeal was granted and, in November 2014, the Supreme Court of Appeal ruled in favour of VEJA. As was widely reported, the company decided not to appeal the matter further, agreeing to hand over the documentation in question within the stipulated timeline. On 17 December 2014 all documents sought by the plaintiffs were handed over.

In line with its commitment to open, frank and more forthright engagement with environmental and other local stakeholders, the company subsequently reached out to VEJA and other NGOs, requesting the establishment of formal communication channels through which legitimate stakeholder concerns might be more openly and expeditiously addressed.

In November 2014 the South African Parliament’s Portfolio Committee on Environmental Affairs conducted an oversight visit to “air quality pollution hotspots” in Gauteng and Mpumalanga. ArcelorMittal South Africa presented to the committee, explaining the nature of the company’s business and its efforts to achieve compliance with relevant air quality management legislation. Details on a number of initiatives, undertaken at considerable cost, were shared with the committee.

In its subsequent report, the committee described the company’s input as “well presented”, adding that the committee appreciated “the frankness of the company in its presentation”.

Energy efficiency

Energy costs – a major driver of the cost of steel production – are rising at unprecedented rates. Our cost of electricity per tonne of liquid steel rose by 12% this year. Tariffs charged for piped natural gas increased by 13% following the implementation of the newly regulated pipeline gas regime.

As is reported elsewhere, the company became the first to apply for a 12L tax incentive in terms of a programme announced by the Department of Energy in 2013 that was aimed at encouraging businesses to improve their energy efficiency.

The Industrial Development Corporation, which is owned by the South African government under the supervision of the Department of Economic Development, held 7.91% of the company’s shares in issue at year end.

An energy management tool developed for the Eskom Demand Side Management programme was adapted to accurately capture data for coal, gas and electricity at invoice level. This data measurement tool allowed the company to obtain a certified baseline for Vanderbijlpark and Newcastle for 2012, against which certified 2013 data was compared, a requirement for our application for the 12L tax incentive.

In 2014 R41 million was invested in repairing existing plant and equipment to maintain and improve our energy performance.

The risks associated with our business’s exposure to electricity supplies from the national grid is reflected in the fact that uncertain access to energy is our third highest-ranking strategic risk. Negotiations to support the development of an 800MW natural-gas power plant in Saldanha continued this year. It is envisaged that, if negotiations are successful, Saldanha will be entirely powered by this plant, at costs that are comparable to current electricity tariffs but that will be subject to considerably lower, more predictable, increases than those that would be incurred through continued reliance on the national grid.