Restructuring of Electricity Distribution Industry: public hearings Day 2 – 26 July 2012

PMG 26 July 2012.

Chairperson:

Mr S Njikelana (ANC)

Summary:

The South African Insurance Association had noted a number of risks to the electricity supply industry, particularly the backlog in maintenance. The industry had a huge asset base, and coverage could not be borne solely by the domestic industry. There was a need for some form of self-insurance. There was no option in the local industry of covering business interruptions, as these were not unforeseen events.

Business Unity South Africa told Members that the generation industry was not growing substantively, and was being put under pressure by the distribution networks that were in a state of decay. Calling on business to save electricity was leading to reduced productivity. Expensive repairs were becoming necessary due to a lack of maintenance even though the required funds were available. There had been a decline in spending on electricity in recent years. Competition was the lifeblood of the economy, and the private sector had to be involved.

Professor Eberhard, an expert and member of the National Planning Commission, told Members that the Regional Electricity Distributor concept was dead and no adequate alternative had been put forward. The uncertainty in the industry had resulted in inadequate human and physical investment. The distribution system was experiencing huge problems. The constitutional rights of municipalities to distribute electricity had to be respected. Metros and large municipalities were generally doing a good job, but attention was needed in other areas. One institution, preferably the Department of Energy, should be held accountable for addressing the problems of the industry. He proposed a small levy on transmission costs in order to finance the backlog of maintenance that was needed.

Mr Deon Louw demonstrated the size of the distribution industry. He had concerns over the ages of both equipment and technical staff. He feared a collapse within three years. Tariffs had to be increased because of the need to increase generation capacity and to effect repairs. The expansion of the electrification system was pressurising the current network. A new approach was needed together with the introduction of new technology. Maintenance budgets were being targeted for other unplanned expenses.

Members agreed on the need for substantial investment under the oversight of the Department of Energy, possibly in the form of fiscal grants. Municipalities would need to be encouraged to adopt better practices. New technical staff would be needed, and Members were concerned about what had happened to technicians when power stations had been closed. There was concern over affordability and the lack of planning. They were told that it was difficult to attract students to electrical engineering and similar disciplines. With the right commitment, the maintenance backlog could be cleared in five years. Small businesses in particular were battling to remain viable given the dramatic increase in electricity tariffs.

The City of Ekurhuleni was experiencing various challenges. While there was a migration to pre-paid meters, there was a high prevalence of tampering. Measures were being introduced to counter this. Some 97% of revenue was recovered, a much higher percentage than the recovery rate in areas supplied directly by Eskom. The disparity in tariffs between the municipality and Eskom was a challenge. The backlog of bringing electricity to residents was being reduced.

Centlec provided an electricity distribution service to the city of Mangaung and several municipalities in the province. Losses had been reduced. It was delivering above expectation on the electrification programme. Its recovery rate was good and a lot of arrears payments had been collected. Various training programmes had been instituted. Tax was still an issue. Municipalities which were partners with Centlec made their assets available to Centlec but retained ownership. The winter tariffs imposed by Eskom were not justified. Eskom charged different tariffs in their various areas of operation.

The Association of Municipal Electricity Undertakings had been set up to explore solutions to the challenges in the industry. The most significant of these were inefficient asset management and ineffective infrastructure investment. There were also problems regarding vacancies and remuneration. There were problems in the way networks were managed. An example of co-operation between municipalities in KwaZulu-Natal was quoted. Many municipalities were ceding their distribution rights to Eskom.

Members were concerned that municipalities were not embracing energy saving techniques. They were told that this was not the case. There was also concern over the consequences of illegal connections. Legislation regarding copper cable theft was welcomed.

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