Restructuring of Electricity Distribution Industry: public hearings Day 1 25 July 2012.

DOE 25 July 2012.

Date of Meeting:

25 Jul 2012


Mr S Njikelana (ANC)

The Energy Institute noted that South Africa was a technology leader, but the age of electrical systems was leading to a disastrous situation in the future. Costs were increasing while revenue was decreasing. Budget cuts were affecting the amount of money being spent on maintenance. The system needed to be modernised to face the challenges of the modern world. Although some bold new ideas had been tried, the country was still facing the same problems it had been confronting for some time. Adequate investment was needed to keep the distribution industry in a position to service the people of the country. It noted that Eskom had been the target of unfair criticism.

The Department of Energy spoke about the size of the industry. The value of assets was approximately R260 billion. Government had attempted to restructure the industry by means of the introduction of EDI Holdings and six Regional Electricity Distributors, but this plan had failed. One of the reasons given was that municipalities insisted on their rights to distribute energy as enshrined in the Constitution.

Members raised a number of questions about the differences in performance between Eskom and municipalities. Backlogs in maintenance had arisen primarily due to uncertainty over the structural changes that had been planned. The practice of using electricity revenue to cross-subsidise other services was questioned as was the financial viability of many municipalities. Technical training had to be a priority.

Eskom said it had been willing to adapt to the structural changes in the industry. Its network was in good condition with most of its maintenance requirements having been addressed. They raised the value of forming partnerships to address the challenges in the industry. Eskom argued for an oversight committee to be formed to find solutions to the challenges.

The Department of Co-operative Government and Traditional Affairs had formed a unit to assist with municipal infrastructure. There were significant differences between urban and rural communities. In the later case, maintenance of infrastructure was particularly poor. Staff retention was difficult. The industry needed to be transformed. There were problems with high consumer debt and poor budgeting. The Department was concerned about the practice of municipalities cutting off electricity supplies in order to enforce credit control.

The National Energy Regulator of South Africa had the power to issue licences to power distributors and adjudicated on requests for tariffs. Conditions were applied, but the regulator could not revoke a licence at its own discretion, nor were the fines it issued legally enforceable. Distributing authorities were supposed to divert 6% of their revenue to maintenance but a huge backlog had been allowed to develop. Reporting standards were poor in some cases.

National Treasury supported the concept of ring-fenced funding. Municipalities had a combined surplus of more than R7.6 billion from electricity sales. Provision should be made for maintenance and capital projects. Funding to address the maintenance backlog could come from loans, but the state would not stand surety. The Development Bank of Southern Africa and private funders should be approached for assistance. Treasury supported the concept of two or more municipalities working together to provide a distribution service.

The Financial and Fiscal Commission argued that municipalities needed the resources to fulfil their functions. It was concerned about the affordability of services given price increases on all fronts. A massive investment was needed globally to refurbish electrical systems. The Commission could not comment on the proposed funding models in the absence of a more detailed presentation.

Members asked if there would be any compensation to municipalities if energy-efficient techniques were adopted, as the resulting reduction in consumption would lead to a loss of revenue. They were told that it was difficult to track what was done with the surplus from electricity sales as this all went into a general revenue pool. Grants were not fully utilised due to non-compliance with the associated conditions. Since the demise of the Regional Electrical Distributor model, there had been no viable alternative proposed.