Integrated Annual Report 2016
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 Strategic objective 3: Creating social value

Being seen to be creating meaningful, substantial social value for a wide range of stakeholders is essential to us earning and maintaining our licences to operate

 

Why this is important

Two of the ArcelorMittal group’s 10 sustainability outcomes are that we be an “active and welcomed member of the community” and that “our contributions to society are measured, shared and valued”. We subscribe to, and actively pursue, these outcomes while, in the South African context, working diligently to use our scale and socio-economic reach to effect meaningful transformation within our workforce, supply chains and communities.

Our various licences to operate are premised on our ability to demonstrate our commitment to create value for all stakeholders, including our customers, and to practice sound environmental stewardship.

Three-year key performance indicators

  • KPI
    10
  B-BBEE compliance score        
    2014 (old codes) 2015   2016  
    Level 6 Level 4*   Level 4**

  • KPI
    11
  Preferential procurement (percentage of total spend) (%)        
      2015   2016  
    EMEs 2.41   3.28  
    QSEs 8.14   6.85  
    Black-owned businesses 13.37   14.01  
    (We present here only information from 2015 as the amended B-BBEE codes made it extremely difficult to make meaningful comparisons with prior years.)

    Total environment spend (Rm)        
    2014 2015   2016  
    63 65   38***

  • KPI
    13
  Fines, penalties and settlements        
    2014 2015   2016  
    None None   R1.5 billion  
  * Reported in 2015 as a self-assessed Level 3. Final assessment: Level 4.
** Self-assessed but externally assured by Deloitte.
*** Excludes R138 million spent on co-generating electricity.

Issues that were material to our creation of social value in 2016

  • Workplace safety
  • Resolving Competition Commission issues
  • Establishing a fair price for steel
  • Supporting downstream industry
  • B-BBEE compliance
  • Environmental compliance
  • Carbon taxes
  • Commitments to capital expenditure
  • Enterprise and supplier development, and preferential procurement.

Key actions taken in 2016 to address our most material issues relating to social value creation

  • Engaged with the authorities, industry bodies, regulators and customers on tariff and non-tariff trade protection
  • Finalised a fair pricing mechanism on flat steel products
  • Finalised all pending investigations and prosecutions with the Competition Commission, entailing a R1.5 billion fine
  • As part of the Competition Commission settlement, committed to R4.6 billion capital expenditure over five years
  • Concluded a B-BBEE ownership transaction in terms of which a broad-based black consortium, employees and communities acquired a recognised black shareholding of 25% of our share capital
  • Established a business incubation hub and expanded registration of HDSA-owned potential suppliers
  • Significantly reduced water abstraction and maintained or restored zero effluent discharge status at Vanderbijlpark and Newcastle

Tariff and non-tariff import protection

Unlike almost all countries possessing a primary steel sector, until recently South Africa had no protection against imports produced at artificially low prices. In a situation of worldwide overproduction, this meant that South Africa was particularly targeted for steel exports. Towards the end of 2015 this situation began to be rectified with the implementation, by the authorities, of 10% duties on various steel products, in order to ensure the viability of the steel industry. By mid-year duties were in place on 10 product categories.

In the middle of the year the authorities approved the designation of local steel on five product categories. These included rail moving stock, water pipes and specific products used in state infrastructure.

In January 2017 the Department of Trade and Industry announced the designation of local products, including all steel, both primary and finished, used in state construction projects. In essence this means that those tendering for state construction projects will have to include 100% primary and finished steel products in their bids. This was an extremely encouraging development for ArcelorMittal South Africa but its impact is likely to be primarily and more immediately felt in the downstream.

Those customers of ours who use our crude steel to fabricate, manufacture and install products used in construction have recently been prejudiced by imported finished products. The designation of locally produced and manufactured steel products in public sector construction will prove a boon to their enterprises, to employment and to the South African economy. It is also our view that, in sourcing quality, locally manufactured steel inputs for infrastructural investment, National Treasury will be incentivised to increase budget allocations for such projects because of lower prices and broad, positive economic effects. Such larger infrastructural investment will benefit our company, its customers, suppliers, employees and local communities, creating greater social value.

In exploiting the new opportunities arising from the designation of local content, steel manufacturers will inevitably seek to increase employment, in particular those with artisanal, technical skills. In this respect our substantial investment over several years in technical training, apprenticeships and bursaries will serve to unlock considerable social value (click here).

As alluded to, South Africa has experienced a surge in imports of not only primary steel but also imports of many finished products, which negatively affect downstream producers. As a result, a number of applications for tariff protection against such unfair imports have been made. In various instances we have sought to assist our customers through knowledge sharing and especially by extending strategic rebates.

At the time of reporting, official decisions concerning safeguard duties on HRC and cold rolled coil, and other bars and rods were being awaited. The company had, however, received communication from the International Trade Administration Commission of South Africa (ITAC) indicating that it was considering not granting the safeguard duty applied for on HRC due to public interest considerations – despite finding that a case for safeguard existed. The company was continuing to engage with ITAC on this matter. In 2017 we intend engaging with our customers, the downstream, on arguing for import protection measures which will benefit the full steel value chain.

ArcelorMittal South Africa has recently intimated to various stakeholders, including regulators and government, employer representatives and industry bodies, as well as customers, its willingness to partner with the downstream on whose health it is so dependent for its own success. Measures the company believes it can implement to support customers and which will have directly, positive impacts include:

  • Value-added export and strategic rebates which, in 2016, tripled to R479 million
  • Assistance in seeking duties on finished products
  • Improved payment terms
  • Reviewing market access, including direct access to the company and creating larger buffer stocks
  • Interventions to assist the downstream to participate in infrastructure and other projects
  • Establishing a technology and innovation hub to facilitate the empowerment of, especially, black-owned businesses
  • Leveraging ArcelorMittal South Africa’s considerable training resources to further benefit the entire industry.

Our decision in December to supply 21 000 tonnes of steel products per month to the Mpumalanga facilities of Evraz Highveld Steel for processing into heavy steel products (click here) was about more than just driving profitability. When it ceased operations Evraz Highveld had employed 1 700 people. At the time of reporting it was not clear how many new jobs would be created with the resumption of operations but it was likely that this would amount, at least, to several hundred with former Evraz Highveld employees being given preference. Restarting operations will also have a significant impact on the local economy.

Fair pricing for steel
  • Risk
    2
  • Risk
    3

We acknowledge that, as much as we need protection against unfair imports, our customers are entitled to buy steel products at fair prices and that it would be inequitable to expect them to pay higher prices simply to protect ArcelorMittal South Africa and other primary producers. To this end, in April we agreed to a fair pricing formula on our flat steel products, which government endorsed in February 2017 (click here for details). It was agreed with various authorities and stakeholders that there was sufficient domestic competition to allow market forces to determine prices for long steel products.

In addition to the fair pricing dispensation, a condition of the Competition Commission settlement was that, for flat steel products, we would not earn a margin of more than 10% (under certain conditions, up to 15%) of earnings before interests and tax (ebit). This will apply for five years.

Resolving Competition Commission issues

In November 2016 the Competition Tribunal approved a settlement, recommended by the Competition Commission, of the Commission’s long-standing investigation into allegations of anti-competitive behaviour by ourselves.

The settlement entails us paying an administrative fine of R1.5 billion in annual instalments of not less than R300 million. In addition, we committed to invest the amount of R4.6 billion over the next five years in our operating footprint. It is intended that these improvements will benefit not only investors in ArcelorMittal South Africa but also our customers and suppliers.

While the resolution of the competition issue entails very substantial costs, our leadership considered it essential to decisively confront and deal with this very material risk, to draw a line under past misdemeanours so that we are able to demonstrate going forward, our total commitment to ethical conduct in all aspects of our business and in all of our interactions with stakeholders.

A Competition Commission statement on the settlement agreement is available online.

B-BBEE performance

As at 31 December 2016 we had a self-assessed B-BBEE compliance rating of Level 4. A year previously, our score also stood at Level 4 whereas a year before that we were at Level 6 and, at the end of 2013, Level 7. (Our 2013 and 2014 compliance was measured under the old, subsequently revised, B-BBEE Codes of Good Practice; had our 2013 and 2014 performance been measured under the revised codes, we would have been non-compliant.)

The revised codes resulted in most steel and large industrial companies dropping at least two levels. Almost alone among our peers, we dramatically improved our performance, a performance that was driven by the board of directors which, among other measures, established a B-BBEE subcommittee in 2014.)

Our enhanced B-BBEE performance (45 points at end-2014; 81 points at end-2015 and 89 points at end-2016) derived from an improvement in all elements of the codes’ scorecard including ownership, management control, skills development and socio-economic development. However, in the area of enterprise and supplier development, which includes preferential procurement and which constitutes the single largest amount in the codes, our score (28 out of a possible 44 including bonus points) only partially reflected the very substantial investments of financial and human capital which we made this year in creating meaningful social value, especially for our local communities.

Enterprise and supplier development and preferential procurement

As in 2015, this year our enterprise and supplier development (ESD) and preferential procurement investments were managed by 10 individuals with direct input from some 30 procurement employees at head office and various business units.

Our enterprise development efforts aim to develop emerging businesses and prepare them for absorption into our value chain. Businesses register via a simple web-based system, are audited for capability and then undergo business training and a two-year formal incubation. The company subsequently gives these businesses contracts of at least three years. This year 470 local businesses registered, bringing to 1 017 the total number on our database.

In October 2016 a 1 600m2 (under roof) ArcelorMittal South Africa incubation hub was completed in Vanderbijlpark at an initial cost of R12 million. Aimed primarily at light to medium manufacturing, fabrication and reconditioning businesses, the hub will house 12 undertakings which will create at least 77 direct jobs over the initial 24-month cycle. In addition to space and services and ongoing mentoring, our partnership with government has ensured co-funding of this incubation hub to the value of R14 million over a three-year period. In total, our 2016 investment in enterprise development amounted to R6.4 million.

With supplier development, we aim to enable those smaller (black-owned) enterprises that are already supplying to the company to increase their business with us, and their capacity to supply more broadly. In 2016 we spent
R10 million on 14 supplier development programmes and R2.7 million on a new industrial park with a capacity of housing three medium-sized industrial suppliers. Employment has already been created for 48 local community members, housed in the first industrial building. A supply agreement has been concluded for the second of three buildings which will enable a further 53 direct jobs with a specific focus on youth and women from local communities.

As with our enterprise development spend, however, on supplier development this year we spent more than the amount recognised by the B-BBEE Codes of Good Practice. Over and above this amount (R8.4 million), we spent R1.5 million on supplier development, including an amount of R700 000 on practical business-oriented training supplied by North West University and Vaal University of Technology for both ESD candidates.

Through ArcelorMittal South Africa’s supplier development programme, existing supplier development beneficiaries benefited this year from improved procurement worth R49 million on a year-on-year basis (a 155% improvement).

Meeting our legislated requirements on preferential procurement was challenging this year. Our “generic recognised spend” declined by R800 million, “majority black ownership recognised spend” by R600 million and our “black women-owned recognised spend” by R1.4 billion, impacting, in particular, a few large previously empowered vendors. This development had a 4.85 negative impact on our overall B-BBEE compliance. Whereas we achieved 15.1 points for preferential procurement at the end of 2015, this would have deteriorated sharply this year had we not taken decisive measures. By year-end 2016 we had succeeded in arresting the deterioration in our preferential procurement performance, to the extent that we ended the year with a self-assessed 12.5 points.

At year-end we had 2 191 active vendors of which 582 were emerging micro-enterprise (EME) vendors, 497 were qualifying small enterprises (QSEs – which number declined as expected, from 552 a year earlier), 152 were >30% black-women-owned businesses and 338 were >51% black-owned. Overall, the percentage participation in procurement opportunities from black-owned businesses improved by 11% while the percentage participation in procurement opportunities of SMEs improved by 24% year-on-year.

Given that our total procurement spend is R28 billion and that spend with EMEs and QSEs is some R2.75 billion, the need to invest additional resources in managing our emerging supply chain requirements is apparent. (In 2016 we spent an amount of R16 million on the development of EME/QSE vendors.)

As a leading player in the steel value chain we are committed to working with partners to create meaningful social value for especially the downstream. In this regard we are co-operating with other manufacturers, suppliers and national and provincial governments as well as with state-owned enterprises, on extracting maximum value from our procurement processes. Similarly, we are playing a leading role in creating outcomes that will rapidly unlock broad-based value from the iron ore-to-finished steel chain for SMEs and communities, as is now being practiced by mining’s Operation Phakisa initiative.

Two additional key initiatives were undertaken during 2016 for the purposes of accelerating sustainable transformation within local communities. In the first instance, CSI initiatives were aligned with ESD initiatives. With a clear line of sight over development projects across all three focus areas, it is possible to initiate projects within local communities which will facilitate the eventual participation of these communities in the company’s procurement landscape.

Socio-economic development

Despite our extremely challenging financial circumstances, in 2016 we increased our socio-economic investment, from R12.6 million to R17.4 million.

In line with our drive to embed the ArcelorMittal group’s 10 sustainable development outcomes in our creation of value for all stakeholders, we seek to have our contribution to society measured, shared and valued. To this end we measure, as precisely as possible, our investments in socio-economic development, and have these investments independently assured. In 2016 we remained committed to our flagship science centres, our partnership with the provinces’ departments of education to run three science centres in Sebokeng, Newcastle and Saldanha. This year we spent R12.6 million on the operations and programmes of these centres with a large portion of funding paying the salaries of 49 science centre staff, which investment reached 527 teachers and more than 20 000 learners.

An additional R2.4 million was spent on roofing or re-roofing 201 homes in Sharpeville while training and employing 67 locals who gained skills in installation and asbestos handling. Humanitarian aid in the form of roofing material was provided to 500 families in Moreleta Park and Plastic View informal settlement after their homes were destroyed by fire.

This year the company provided R20 million towards the development of an affordable housing project for low to medium-income employees on 180 stands in the Vanderbijlpark area. Qualifying employees will be able to buy serviced stands at below market value. In addition, employees can select from cost-effective light steel frame building structures (manufactured by ArcelorMittal South Africa) at less than half the cost of conventional brick-building alternatives. (This year the company began establishing training facilities where local community members will be trained in erecting such light steel frame houses.)

Ownership

In November shareholders approved a B-BBEE transaction in terms of which 17% of our issued share capital was acquired, through a special purpose vehicle, by Likamva Resources, a 100% black-owned company in which black women held a 58% interest. In addition, a new employee share ownership scheme, the ArcelorMittal South Africa Employee Empowerment Share Trust, gave employees and management a 5.1% interest in the company they work for.

The allocation of shares to employees was structured such that at least 60% of trust units will belong to black employees. The effects of the two transactions is that, in terms of the B-BBEE codes, the company is assured of a long-term black shareholding of at least 25.1%, giving it 25 points under the ownership element.

Of particular added significance is the agreement by Likamva that it will, within two years, transfer 5% of company shares to organisations representing community interests in the areas in which our production facilities are located: Vanderbijlpark, Newcastle and Saldanha. We believe that giving our local communities a material interest in the wellbeing of our business will be especially important in our drive to create meaningful social value. In executing one of the ArcelorMittal group’s 10 sustainable development outcomes (to be an active and welcomed member of the community), we will record a first for the worldwide family of steel businesses of which we are part, a first which we believe other operations would do well to emulate.

Management control and employment equity

Further progress on targets contained within our five-year (to 2018) employment equity plan was made this year. In particular, at year-end, five of the 11 top management posts (45%) were filled by ACI individuals (at the end of 2015, three out of 12).

As at 31 December 2016 our management control performance (15 points plus a potential four bonus points) was 9.25, a significant improvement on the 8.26 of a year previously. This year, however, tough trading conditions continued to hamper our ability to attract scarce ACI talent in the junior management and above levels. At senior management level, in particular, attrition rates and competition for black skills remained particularly challenging.

Skills development

This year our very substantial investment in the values and skills of our people translated into a commendable skills development score of 21.42 points (click here).

Environmental performance

Total raw materials consumed
 

We want to be acknowledged for using natural resources in the most efficient and effective way, so that we are seen to be creating significant value for our stakeholders, especially our local communities which are impacted by our emissions and our use of the local water resources which we share with them.

In 2016, our most material environmental issues were:

  • Water management
  • Emissions to air
  • Proposed carbon tax and climate change-related developments including energy efficiency
  • Rehabilitation of legacy sites
  • By-product utilisation

(Our key environmental indicators derive from those most material issues which we are able to directly influence.)

Our processes consume significant quantities of raw materials and, while the scope for improvement in consumption patterns is inherently limited, we apply considerable effort towards reducing our use of natural capital. Most importantly we continuously strive to reduce the amounts of raw materials brought in by road by working closely with Transnet. In this regard we hope to achieve meaningful improvements in 2017.

We strive to achieve the ArcelorMittal group’s sustainability outcome, to make efficient use of resources and to achieve high recycling rates. To this end we seek to maximise the amount of scrap steel consumed by our steelmaking processes. However, in 2016 our total consumption of scrap declined by some 14%. This was mostly related to production volumes.

Electricity usage
 

In 2016, in particular, we continued to invest in reaching and maintaining zero effluent discharge (ZED) status at Vanderbijlpark and Newcastle. Also, we achieved conspicuous success in lowering our intake of fresh water – a key imperative especially at a time when the country was grappling with the effects of a severe drought.

Our key environmental indicators include emissions to air and water intake as well as the percentage of by-products not utilised – that cannot be usefully sold and used and need to be land filled. Our performance on these key indicators, and others, in the year reviewed relative to previous years is reflected in various graphs in this section.

ArcelorMittal South Africa embraces the need to produce steel in the most environmentally friendly ways possible. We are committed to minimising our impact on our environment and on the health and wellbeing of our communities. To this end we have invested some R2 billion over the past decade in reducing, where possible, emissions and process water discharges while addressing environmental legacy issues. While this year we formally reflect an amount of R38 million on mitigating our environmental impacts, as noted elsewhere, the amount (R138 million) spent on installing an off-gas boiler at Vanderbijlpark will have a direct impact on our emissions of CO2.

The off-gas boiler will, it is envisaged, have a material impact on both our CO2 emissions and our cost of electricity after it is commissioned in March 2017 (click here). Since 2014 our co-generation of electricity has increased by some 14%, a figure which we predict will increase further in the new year.

We also strive to find more applications for our by-products, but with the depressed construction sector being our largest client, progress was below expectation this year. This situation was exacerbated by an intervention (see below) by the authorities which we believe was inappropriate and which had the effect of significantly increasing our disposal of valuable by-products.

There were no major environmental incidents recorded in 2016 in terms of section 30 of the National Environmental Management Act (NEMA) although, in some instances, we struggled to comply with all the conditions of our various operations’ authorisations/permits / licences. In 2016, our biggest environment concerns were:

  • Particulate emission levels of Vanderbijlpark’s sinter plant
  • Effluent discharges at Vanderbijlpark
  • Fugitive emissions from the Saldanha Corex cast house towards the end of 2016
  • Sulphur removal from coke oven gas at Vanderbijlpark.

Apart from the last point all concerns – where longer-term intervention is required to achieve required plant availability – were effectively addressed in 2016. Regarding the Vanderbijlpark sinter plant emissions, our interventions were successful but more work is planned for 2017.

In absolute terms, levels of particulate emissions were higher this year than in 2015, related largely to problems encountered with particulate emissions at the Vanderbijlpark sinter operation.

In June 2016, Green Scorpions inspectors from different spheres of government visited Vanderbijlpark. A report regarding this inspection was made available in November 2016, the main concerns highlighted relating to:

  • Housekeeping in certain areas
  • Stormwater management
  • Material spillages
  • Aspects of waste management (waste sorting)
  • Atmospheric emission licence (AEL) compliance (sinter was main concern).

At the time of reporting every effort was being made to address the findings made in the Green Scorpions report.

Our key environmental risks

    Why it is important  

Developments and actions taken in 2016

 
Carbon taxes  

Could have the effect of making
our business unsustainable. We
acknowledge our potential
impacts on climate change.

 

Legislation to implement carbon tax is now expected to be debated by Parliament in 2017. This year we engaged extensively on seeking additional relief for carbon-intensive, but employment-generating industries such as iron and steel.

 
Effluent
discharges
 

Environmental impacts and
potential licensing and legislative
infringements.

 

Newcastle ZED project was fully implemented in 2015 and ZED status maintained this year despite minor, sporadic discharges which were resolved after small improvements were implemented. Vanderbijlpark’s ZED status was restored in October 2016.
Vereeniging was able to sustain the boron levels in its effluent below specified levels after improvements made in 2015.

 
Fugitive
emissions
 

Emissions caused by ineffective
process controls could infringe AEL
conditions.

 

All plants issued with AELs. Improvements were devoted to capturing excessive emissions at the Vanderbijlpark sinter plant, a project that was completed in July 2016.

 
 

Also at Vanderbijlpark, a vapour recovery project at the tar distillation facility is nearing completion after some unfortunate delays occurred.

 
 

Temporary technical problems resulting in excessive fugitive emissions at Saldanha’s Corex plant were resolved.

 
        For 2017, significant improvements are scheduled, or are to be continued, at our ironmaking and coke-making facilities with a strong focus on Newcastle Works.  
Legacy areas  

Groundwater and atmospheric
pollution (fugitive emissions) could
impinge licences to operate.

 

A project to establish a new disposal site to replace the old Newcastle BOF slag site was finalised in December 2015 with the first disposal commencing in 2016 after meeting all construction-related conditions in the licence. Good progress was made at Vanderbijlpark
to complete and maintain remediation efforts, with more work planned for 2017.

 
Groundwater
contamination
  Groundwater pollution from
egacy dams and active sources at
certain business units could affect
communities and the environment.
 

Work is ongoing where legacy groundwater pollution is evident and good progress was made to neutralise past activities that may have resulted in potential contamination. The practice of storing effluent in unlined dams was phased out some years ago.

 

Water management

A standout achievement this year was our performance on water abstraction which, at 3.24kℓ per tonne of liquid steel, was the lowest in almost a decade (2015: 3.81kℓ/tonne). At 15 475 311kℓ our total fresh water intake was 16% lower than the 18 418 173kℓ of the previous year. Relative to 2005, our absolute water abstraction declined by 54%.

ArcelorMittal South Africa fresh water intake
(per tonne of steel)
  ArcelorMittal South Africa fresh water intake (kℓ)
 

The main reason for our improved water abstraction performance was the finalisation of our long-term, very costly, ZED commitments while some smaller-scale savings were also achieved by a concerted campaign to fix leaks. The best water saving performances were achieved at Newcastle and Vanderbijlpark where improvements varying between 12% and 19% were recorded both in absolute and specific terms.

Maintaining Newcastle’s ZED status proved to be challenging on occasion this year, the main difficulties relating to the quality of effluent received from the coke ovens being below the ZED facilities’ treatment specifications, and problems experienced with a pre-treatment stage of the newly installed reverse osmosis plant. These were addressed and, since Q4, Newcastle has sustained its ZED obligations.

As anticipated and following a substantial investment (R42 million), ZED status at Vanderbijlpark was achieved in October 2016. In addition to the large financial outlay, this single challenge absorbed much of the time and attention of the environment and water departments.

Our Saldanha operations are equipped with infrastructure to utilise treated municipal sewage water, which also resulted in less potable water being purchased for production purposes. In total during 2016, 165 406kℓ of treated sewage water was purchased from the municipality and applied mainly for dust suppression purposes. Saldanha is a ZED facility which achieves the best water consumption/abstraction figures in the company.

Debating carbon tax and greenhouse gas requirements

CO2 emissions (per tonne of steel)
 

Draft legislation to introduce a carbon tax of R120 per tonne of CO2 above certain thresholds was published in November 2015, indicating that this tax was likely to be introduced in January 2017. Subsequent developments point to the carbon tax now only being processed by Parliament in Q2 2017 with implementation occurring at a later stage during 2017 or even 2018.

Given the status and current contents of the draft legislation we do not believe that this new tax will add more than the R300 million previously communicated to our annual costs to the year 2020. However, we remain extremely concerned that this substantial, added burden could threaten our financial and environmental sustainability as this money would, we believe, be better spent on important but costly environmental improvements. To this end, as in 2015, our CEO and group manager: environment made regular representations on the unforeseen consequences that a carbon tax could have on employment in a key national industry which is intrinsically carbon-heavy.

In particular, we and stakeholders including the SA Iron and Steel Institute and Business Unity SA met regularly with National Treasury on defining the criteria for relief as provided for in the draft carbon tax design. In particular, we stressed the point that additional allowances or relief should apply to sectors such as our own which are exposed to imports from countries which do not have similar carbon tax regimes in place.

Regarding the carbon budgets that were allocated to our company by the Department of Environmental Affairs for the period 2016 to 2020, our allocation was not exceeded on an annualised basis. It is foreseen that climate-change requirements will in future place a significant additional administrative burden on the company and that dedicated staff may be required to ensure compliance with various reporting requirements. It is unfortunate that South Africa is not actively working towards one climate-change mitigation system to achieve the desired outcomes. Instead, each state department is promoting its own mitigation system, in isolation from others. We remain hopeful that a more realistic outcome will prevail – one that balances the very real need to minimise the impact of steel production on the environment with the need to preserve employment, economic activity and the achievement of the objectives of the National Development Plan, in which steel as a commodity will play an important role.

Our direct (Scope 1) CO2 emissions increased while indirect (Scope 2) emissions also increased slightly during 2016. The increase in direct emissions can be attributed to not producing steel via the electric arc furnace route (Vereeniging) in 2016. (For the calculation of Scope 2 emissions, a factor of 1.01tCO2/MWh was used.)

Emissions to air

In 2016 all facilities retained their atmospheric emissions licences (AELs) while excedances of our various AELs were proactively communicated to, and addressed in cooperation with, the relevant authorities. Our most material emissions challenge related to the Vanderbijlpark sinter plant which was non-compliant for most of H1. By July, thanks to a sizeable investment in new filter bags, the plant became compliant but more work is foreseen for 2017. Towards the end of 2016, problems at Saldanha’s Corex plant resulted in visible fugitive emissions being released to atmosphere on a sporadic basis. This problem was resolved before year-end and the authorities expressed their satisfaction in this regard. Unfortunately, a vapour recovery project at the Vanderbijlpark tar distillation facility was delayed and will now only be completed in 2017 at a cost of R27 million.

Particulates, which are our most significant air emissions, increased this year because of the sinter plant challenges referred to above, with overall point source emissions being 0.62kg/tonne of liquid steel (2015: 0.52kg/tonne). In absolute terms particulate emissions increased by 438 tonnes.

SO2 emission levels increased relative to those of 2015 (4.80kg/ tonne of liquid steel (2015: 4.45kg/tonne). In absolute terms, our SO2 emissions rose by 1 337 tonnes. This increase can mainly be ascribed to the increased sulphur levels in our raw materials.

Total SO2 emissions (tonnes)   Particulate emissions (kilogram per tonne of steel)
Total SO2 emissions (tonnes)   Particulate emissions (kilogram per tonne of steel)

BOF slag sales and by-product disposal

Our various slag types are key by-products of the iron and steel making processes and find a ready market in the construction (particularly road-building) and cement sectors.

By-products disposed of
By-products disposed of

Due to the continued depressed condition of the construction sector, the percentage of by-products that had to be disposed of increased from 35% in 2015 to 37% in 2016.

In December 2015 Newcastle was issued with a directive to stop BOF slag sales. This directive was issued on the premise that our clients lacked the requisite waste management licences. We strongly contend that BOF slag is a product and is not subject to applicable waste management regulation but rather to product-related regulations. A request on these grounds to the minister of environmental affairs was dismissed in April 2016, as was an appeal. As a result, and believing strongly in both the merits and benefits to all stakeholders of our case, we have been compelled to take the matter further on review. This enforcement action by the authorities has had a negative effect on our by-product sales and revenue associated with such sales. We remain committed to find further markets for our by-products.

Legacy site rehabilitation

In 2016 we continued to invest in rehabilitating sites as failure to do so poses significant environmental risks.

This year at Vanderbijlpark Works, where the bulk of remediation activities are taking place, the focus was on maintaining and improving the existing remediated areas. Erosion damage, control of invader plants and optimisation of stormwater management received attention in addition to the planning of new projects. Approximately 570 hectares of disturbed land have been rehabilitated or remediated to date. It is important to note that the maintenance and monitoring of our remediated areas is equally important, and that the vegetation in our previously disturbed areas is now so well established that grass harvesting could take place this year, with bales being donated towards drought-relief initiatives.

Stakeholder engagement

We acknowledge that various stakeholders, including local, provincial and national government, communities and non-governmental organisations, have very material interests in our environmental performance. As directed by the board, we actively strive to ensure that maximum transparency is brought to bear on our environmental work and performance. The board is regularly updated, via the SHE committee, on engagement with stakeholders interested in our environmental performance and impacts.

In Vanderbijlpark we continued to participate, with various stakeholders, in air quality, waste monitoring and water quality forums. Similarly, in Saldanha we contributed funding towards an ongoing initiative aimed at monitoring the quality of seawater in Saldanha Bay and participated in municipal stakeholder forums on a quarterly basis. Similar engagement also occurs at our other operations.

Our environmental policy

The 10 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 from 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 CO2 footprint of steel production
  • Employee commitment and responsibility towards environmental performance
  • Supplier and contractor awareness and respect for 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. In 2016 all of our operations retained their ISO 14001 certification.

We are bound by environmental legislation including the National Environmental Management Act, No 107 of 1998 (NEMA); the National Environmental Management Air Quality Act, No 39 of 2004; the National Water Act, No 36 of 1998 and the National Environmental Management Waste Act, No 59 of 2008.

The group manager: environment is responsible for overall environmental management and compliance. The group manager and corporate energy manager share responsibility for carbon and climate change issues. Both positions report to the chief technology officer. The corporate environment department reports to the health, safety and environment (SHE) committee of the board on environmental activities, performance, policies and outlook. The committee in turn raises material environmental issues with the board.

Outlook

In 2017 air-related improvements will be a key focus area (especially as these relate to our coke and ironmaking activities) together with continued remediation activities. In particular, we intend building on the lessons learnt in recent years to use our limited financial resources to effect significant environmental impact improvements. We will also continue engagement on practicable, useful outcomes to the carbon tax debate.

Our enterprise and supplier development initiatives will be bedded down and developed while we intend giving real, practical expression to translating more of our corporate social investment spend into business opportunities for, in particular, local communities. Given any improvement in our financial performance, and working especially with our new B-BBEE partners, we commit to significantly increasing the company’s socio-economic impact.

Having drawn a line under our past anti-competitive practices we intend, in 2017, strengthening our ethics policies, practices and behaviours and communicating these more extensively across our workforce and supplier base.

Assisting the downstream to combat the large-scale import of finished products and to exploit opportunities arising from the designation of local steel will be key priorities in the new year.


© ArcelorMittal 2017