EE-News Issue 117 November 2010.
(Note. You can see the relevant legislation and Idasa’s response at : Electricity Distribution Industry)
by Chris Yelland, managing director, EE Publishers
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Reliable sources have revealed that the cabinet has decided to withdraw a bill published on 17 June 2009 proposing an amendment to the constitution of South Africa in respect of the existing entrenched rights and obligations of local government entities (i.e. municipalities) to distribute electricity… (more)
The Constitution 17th Amendment Bill had been intended to remove a stumbling block preventing the restructuring and consolidation of the electricity distribution industry (EDI) from some 180 municipal and six Eskom electricity distributors into an end-state of six “wall-to-wall” regional electricity distributors (REDs) serving the whole of South Africa.
This decision by the cabinet is said to be the precursor to the disbanding of EDI Holdings (Pty) Ltd by 1 April 2011. EDI Holdings is a state owned company that was established by government on 1 July 2003 to project-manage the restructuring of the EDI.
It is expected that the Department of Energy (DoE) will be reviewing the whole policy of EDI restructuring to determine if it is still valid and necessary. But in any case, the decision to disband EDI Holdings would seem to indicate a significant shift in both the policy and implementation of restructuring of the EDI.
The EDI restructuring process has been deadlocked almost from its conception in the early 1990s, and certainly since the establishment of EDI Holdings in July 2003.
After 13 years of talking about the thorny issues by government and the various stakeholders, former President Thabo Mbeki set a deadline in his state-of-the-nation address in February 2004 for the establishment of the first RED by 1 July 2005, with the city of Cape Town as its commercial and industrial hub. It was intended that in time RED 1 would be further expanded to encompass the whole Western Cape region.
However, in December 2006 the project suffered a major setback as the RED 1 initiative collapsed in acrimonious circumstances. The fundamental problem was that the necessary legislative framework for the restructuring of the EDI and the establishment of the REDs, including the required constitutional amendment, had not been put in place, and there was a lack of consensus between the city of Cape Town and Eskom on many critical issues.
Following this debacle, in addition to the need for the enabling legislation and an asset transfer framework, a number of conflicting provisions in current legislation were identified, and a long list was drawn up by EDI Holdings of some 23 key issues still needing to be addressed between the stakeholders.
It also became increasingly clear that local government was unlikely to voluntarily relinquish its constitutionally enshrined rights to electricity distribution, because many large municipalities including Johannesburg, Cape Town, Durban, Ekurhuleni and others derived significant revenue from this activity, which was used to cross-subsidise other loss-making service delivery activities.
The revenue surpluses from the distribution of electricity by municipalities were also perceived to be a source of power and influence by local government politicians, and they were clearly reluctant to lose this strategic municipal activity.
Thus, despite outward assurances of commitment to EDI restructuring by local government structures (SALGA), municipalities, the Association of Municipal Electricity Undertakings (AMEU), Eskom, organised labour and various customer associations, this commitment was invariably conditional, and behind the scenes there was serious resistance to the restructuring.
The long list of ministers of Minerals and/or Energy since 1994 – from Pik Botha and Penuell Maduna, through to Phumzile Mlambo-Ngcuka, then Buyelwa Sonjica, and now Dipuo Peters – has also not helped in providing the strong political support and executive sponsorship necessary for continuity and follow-through of the restructuring and rationalisation of this fragmented R30-billion per annum industry.
It also seems that the former Department of Minerals and Energy (DME) and the current DoE was unable to get a clear political consensus on the problematic issues, both from the members of the tripartite alliance (ANC, COSATU and SACP), as well as between national and local government.
Progress was therefore painfully slow, and by 2010 there was still no clear sign of movement towards the establishment of even the first RED. With the voluntary restructuring of the EDI deadlocked over the constitution rights of local government to reticulate electricity, the Constitution 17th Amendment Bill was seen as an effort to enable central government to impose its way over the reluctant municipalities.
The long delays and uncertainties in the restructuring and end-state of the EDI have taken a heavy toll on both distributors and customers of electricity, as well as on the general economy. On 3 March 2009, then Minister Buyelwa Sonjica indicated that inefficiencies in the current EDI structure and the delays in EDI restructuring was costing the country between R2,9-billion and R8-billion per annum, and that the distribution maintenance and refurbishment backlog amounted to some R27-billion. In addition to the direct costs including the high cost of operating EDI Holdings for years without progress, the indirect costs to the productive economy resulting from poor quality of supply and service are enormous.
Municipalities were clearly reluctant to invest the necessary capital and human resources in their electricity distribution activities while central government seemed intent on removing this activity from their direct control and consolidating the municipal distributors into large wall-to-wall REDs structured as public entities as opposed to municipal entities.
With the pending demise of EDI Holdings, it remains to be seen who will take over the burden of dealing with the human resource capacity inadequacies in the EDI, the municipal backlog in EDI maintenance and refurbishment, and the funding model to achieve this. These issues remain real challenges whatever the structure and end-state of the EDI. It is expected that these responsibilities will revert back to the DoE, and that various relevant EDI Holdings staff will be absorbed into the department.
The minister is expected to hold a summit of EDI stakeholders and customers of electricity to engage on the matter and chart a way forward. In the meantime, both the DoE and the National Energy Regulator of South Africa (NERSA) have publicly stated on several occasions that the EDI and its backlog in distribution infrastructure, maintenance and refurbishment is a ticking time-bomb.
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Electricity Governance Initiative - South Africa 