Energy Department's comments on FFC Recommendations on Division of Revenue Act

Standing Committee on Appropriations

13 October 2009
Chairperson: Mr C De Beer (ANC, Northern Cape) & Mr E Sogoni (ANC)
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Meeting Summary

The Department of Energy commented on the FFC’s (Financial and Fiscal Commission) Recommendations as it related to energy in South Africa. These centred on the prioritising of investment into public infrastructure at national, provincial and municipal levels pf government. It was proposed that investment into appropriate development and maintenance of infrastructure would lead to reduced unemployment and poverty. Additionally, it was proposed that the government should improve the standard of projected results of infrastructure investment. Drawing upon efficiency gains, particularly at a municipal level, should be made an ongoing exercise. The FFC report also specified the need for intergovernmental cohesion which should facilitate the development of a national infrastructure maintenance strategy. Local government should be central to setting the agenda for capacity building programs. It was also recommended that reproduction of unclear functions between governmental bodies in the policy framework should be removed. The report proposed that each capacity-building program should have a clear outline of measurable objectives, targets and timelines so that there can be accountability in every sphere of administration.

The Department of Energy generally agreed with all of the proposals made by the FFC. Many of its problems with delivery of service were due to the issues raised by the FFC. These were related to infrastructure; management and targets of municipalities; asset management; and interdepartmental cohesion. It proposed that the recommendations made by the FFC were well-researched, supported, and that they should be expanded upon and put into action.

Members of the Committee asked for clarification on the terms and figures presented by the Department of Energy, what impeded the delivery of electrification, as well as the state of current asset management strategies and infrastructure. They then concentrated the discussion on the matter of integration between departments for effective service delivery and infrastructure maintenance, as it related to the efficiency of municipalities. 

Meeting report

Mr Ompi Aphane: Acting Deputy Director General (DDG), Department of Energy, briefed the Committee on their review of the FFC proposals. He said that overall, the national department of Energy supported the proposals as they were well researched and recorded, but there were some technical difficulties where issues were not addressed directly.

Mr Aphane began by focussing on the chapters relevant to his department’s mandate. He commented on Chapter Two, talking about achieving universal access to all households. He said that the second recommendation funds were already in the system and the government should improve leverages from efficiency gains. His department supported the recommendations to improve the efficiency of the electricity programme. They had reviewed their basic level of service, where in the past they had connected a lot of people but that service was insufficient, quality was regarded as important on 10 amp connection per household, people would trip their power as soon as they ran big appliances. This was the reason for increasing from 10 amps to 20 amps.

Ms Magubane added that 10 amps was the very basic service such as lights; black & white TV, etc. It was the free basic electricity.

Mr Aphane continued by covering the FFC recommendation to improve infrastructure development, saying that his department fully supported this. A maintenance strategy was very important, which included a full management strategy to improve infrastructure. A full asset management strategy was necessary. A lot of capital was being rolled out without it being accompanied with maintenance strategies.

There had been significant delays on the delivery of electricity because the electrification was often waiting on the houses to be built first. There are two scenarios of backlog in delivery: household electrification backlog, and backlog relating to housing themselves. In informal areas there was a lot of growth so a different approach to electrification was necessary.

Mr Aphane said that integration between the different bodies of government was necessary. There were delays in metro and larger municipalities. His department was a service department and so they could only deliver their service to where it was needed. Therefore synchronisation between departments was crucial. The challenge of electrification relating to houses being built was different to those of houses that had already been built. There should be a different way to treat each of these.

Mr Aphane supported the recommendation for stronger Municipal management but argued that the issue must be unpacked because there were financial and human resource complications. It was a challenge for the national spheres of government to both support municipalities and deliver on their mandate. Regarding bigger municipalities, the central issues were around decision-making rather than human resource capacity. Competing needs for expenditure meant that, on the financial side, there needed to be project management strengthening in terms of financing assets and financial income. He commented on poorer municipalities that had challenges generating revenue that found it difficult to invest in infrastructure.

Concerning the FFC recommendation that government should be central to setting agenda for capacity building programmes, Mr Aphane supported this as capacity development programmes were aligned with the objectives of his department’s mandate. It was not only an issue of support or structure, but also an institutional matter. A municipality’s ability to carry out a self-assessment was very important and required a municipal manager with appropriate skills. Mr Aphane recommended the appointment of a municipal committee with proper implementation.

Mr Aphane said that it was important to establish an inter-governmental framework to make it clear what areas have a capacity to deliver on their mandate. It was important to manage fiscal input into municipalities as some had been pursuing ‘unfunded mandates’. It was important to get a balance between income and outcome relating to services.

Mr Aphane stated that the demarcation of services must make economic sense; services must be made on economies of scale, before a look at capacity building roles could be made. He said this in response to the FCC assertion that assets and mandates were unfounded and unclear of where they belonged.  

Mr Aphane commented on Recommendation Five, which proposed that
capacity-building programs must have a clear outline of measurable objectives, targets and timelines. He supported it fully, saying that it was a well thought out and far-reaching proposal. There were structural and institutional issues around capacity building that needed to be addressed. 

Mr Aphane commented on the FFC recommendation for a differential strategy to infrastructure, saying that it was not their territory but they supported the idea. A dedicated infrastructure program could have created many job opportunities.

In conclusion, Mr Aphane stated that his department agreed with, and supported the FFC Recommendations, but that not all services were addressed and so it was opportune to appraise them. 

Discussion

The Chairperson commented on the Acting Director General’s (ADG) absence from the previous meeting. The ADG did not issue an apology for her absence and that the Members of Parliament felt offended by her actions as they were seen as disrespectful to Parliament. The budget process was at an advanced stage and it would be difficult to take into consideration the propositions the Department of Energy made.

Ms Neliswe Magubane, Acting Director General, Department of Energy, responded that she had no intention of undermining Parliament and that she did send an apology for not attending. She said that another meeting had been scheduled for that date which was looking at ways of minimising electricity prices, which she had to attend. She apologised to Parliament and to the Committees.

Mr G Mokgoro (ANC, Northern Cape) said that the ADG has shown that she respects the seriousness of this Committee and Parliament as a whole. He requested the Chair to accept her apology so they could proceed. 

Mr M Swart (DA) commented on the FFC proposals regarding revenue. He asked where municipal money would come from if they took away their profits. It was crucial for cash flow that municipalities got paid first and then they provided electricity.

Mr M Makhubela (COPE, Limpopo) commented on the delay of electrification because of housing delays. He asked whether it was possible to organise electricity while the house was being built. He also asked what exactly caused the strain on the municipalities. Regarding unqualified municipality managers, he asked what the Department of Energy was going to do about them.

Mr T Harris (DA, Western Cape) agreed that it was important to improve the existing infrastructure. He asked what the backlog was in terms of electrification needs. He also commented on the FFC phrase ‘tools of maintenance’ that were not effectively used, He asked what these tools were, and why were they not being used. Commenting on the prior announcement of Eskom’s raised tariff on electricity, he said that the increase was outrageous, and said that Eskom may have benefited from privatising existing electricity assets.

Mr J Rabie (DA) referred to the assertion that there was a lack of a management strategy. He stated there had to be a full management strategy. He asked what a suitable one would be.

Mr J Ghunda (IFP, Northern Cape) asked whether the 20 amp power supply was indeed strong enough to provide quality electricity service to people. Also, referring to Chapter 8, Mr Ghunda asked for clarification over what the poorly defined roles and strategies were.

Mr S Mazosiwe (ANC, Eastern Cape) commented on areas like the North West that for three years had not yet had electricity. There had recently been uprisings and riots because of a lack of service delivery.

Mr G Mokgoro (ANC) said that the department did not talk about skills, particularly regarding maintenance. He asked the Department to comment on future plans, considering the previous year’s load-shedding. He also asked what financial capacity the department had in order to build new power stations.

Ms B Ncobo (ANC) asked what part of their budget gave value for their money. 

Ms N Ntwanambi (ANC, Western Cape) referred to the comments made on the areas municipalities lacked capacity to achieve their mandate. She asked what the Department planned for informal areas, in terms of their municipalities.

Mr Ghunda said that the main issue being addressed by the presentation was a financial one; he asked what the department was going to do about this problem.

The Chairperson, Mr De Beer, asked how the department gave advice to the municipalities, what the operational implementation within the department was, and what the department planned for those who were not making their mandate. He raised the issue where some people would be waiting for electricity until 2012.

Ms Magubane stated that she and the department were not in a position to make a recommendations or comments on issues that did not relate directly to the matter of energy.

The Chairperson referred to the recommendation for the government to review upward departmental baselines, and asked how balances were made considering the economic recession.

Mr N Singh (IFP) asked whether the Department had made any input into the Demarcation Municipal Board. He also asked if the department had a wish list to look at if they had an unlimited budget.

The Chairperson talked about the importance of maintaining infrastructure. He asked how much the Department had budgeted for the maintenance of infrastructure.

A brief break was taken.

Ms Maguabane began her response by saying that departmental tools, like legislation were not always effective.  She commented on Bus Rapid Transit (BRT) restructuring as an example of governmental enterprises that do not have self-assessment. Another problem was having municipal managers not knowing how much they could or should have spent, and how much should have been put aside. All revenue made my municipalities should be used to maintain or develop infrastructure. She repeated that the tools for municipalities and departments need to be used properly.

Ms Magubane said that the Eskom’s rise in tariffs on electricity would have serious consequences. It related to the issue of profit-making by municipalities and the quantum of requests for an increase in electrification. Ms Magubane said that this had become a fiscal problem. The increase in cost of electricity would affect the fiscal regime of the municipalities, which would make them harder to sustain. The rise in the cost of electricity could have made the country uncompetitive.

Ms Magaubane agreed with the idea of electrifying and building houses at the same time. The function of her department was on planning and program management. There seemed to be a disjuncture between provincial government and municipalities, which needed to be improved. She added that her team was investigating the matter.

Ms Magubane commented on cost containment related to bloated government structures. Her department had deployed one hundred technicians at municipalities, because they had wanted to reassess their processes and efficiency, looking at ways that they could improve it.

Ms Magubane said that her Department would not be removing poorly qualified municipal managers, as that was not their jurisdiction. Identifying who was incapable would have allowed them to assess the weaknesses of municipalities.

Ms Magubane said that the backlog on delivery of electricity was approximately eleven million houses.

The Chairperson asked from what surveys the Department had drawn their figures. Some departments were still using 2001 surveys which were outdated.

Ms Magubane replied that they used 2007 survey information.

Ms Magubane replied to the query about the asset management program, stating that there was one but it was not adequate. She added that some municipalities had no idea about what their asset management strategy was.

Ms Magubane said that a 20amp power supply was sufficient for basic electrical demands such as lights; two-stove cooking; microwave etc. Previous electrification of houses had only been 10 amps, and that was regarded as not providing an adequate quality of living. Her department believed that 20 amp connections were sufficient.

Mr Ghunda said that his house was 90 amps and asked again whether 20amps was enough to ensure quality of life.

Ms Magubane replied that older houses generally used that amount of power because it had been built in an era where there was an abundance of power, but the more modern houses were fine with 20 amps.

The Chairperson asked whether 20 amps was sufficient to allow a family to survive.

Ms Magubane repeated her statement that 20amps was enough to provide basic electrical necessities, according to her department’s calculations.  
 
Ms Magubane said, regarding skills and maintenance, that provision for money should have been made to have ensured that skills and infrastructure were maintained.

She addressed the statement that the presentation did not cover provisions for the electrification of the informal sector, saying that she would be glad to return with her plan to cover them by 2014. The country was faced with the recession and the problems that it has always had before that. The options that they had were to both uphold the status quo, and ignore the new problems or, to try something else. Her department was mindful of the recession and stressed that successful communication and proper spending was important to allow the economy to rise again.

The Chairperson said that the department was confusing questions in their response. He asked for clarification regarding the question on savings.

Ms Magubane replied that a look at savings was based on those areas that did not affect service delivery. 

Ms Magubane said that they did indeed have a wish list. They would, with the necessary financial resources, wipe out the backlog by 2012, but it was more likely that they would not get the resources that they needed so it would be 2014. On the issue of maintenance, she said that they also had a plan but the resources that they needed to redress it were large. There was no separate budget for the maintenance of infrastructure.

Ms Magubane said that municipalities were not economical because they had to be constantly supported. That was the reason for recommended control over the demarcation for municipalities.

Mr Singh said that a bigger problem was when people did not pay for services and so put strain on municipalities.

Mr Makhubela asked again what had happened to municipal managers who were incompetent, if the Department was not letting them go.

The Chairperson replied that employment of municipal managers was out of the Department’s jurisdiction.

Ms Magubane said that value for money related to the efficient use of revenue to achieve the mandate. When this did not happen it was usually due to a lack adequate management and infrastructure. Her team had sent out technicians to gain as much information as they could about the strengths and weaknesses of these municipalities.

Ms Magubane agreed with the statement about the Eskom tariff increase for electricity. Committee members in the future should report to the Department before such decisions were made.   

The Chairperson said that in his own experience problems of service delivery had been solved without the need to look at maintenance of infrastructure first. Some municipalities generated their own revenue, and asked if they should not be looking at some sort of balance. National and Provincial Government should support municipalities. He asked if there was a need to privatise Eskom’s assets, and whether it would have a long term benefit.

Ms Magubane clarified what she meant by prioritisation, she said that they should consider, for example, cutting back on international travel, so that service delivery could be given more resources.

The Chairperson said that all the clusters of government should have assessed their problems and worked synergistically to accomplish their mandate. Departments did not delegate senior officials to the task of integration. The needs of service delivery should be assessed and addressed together, by all departments involved.

The Chairperson, Mr De Beer, said that there was a lack of inter-departmental coordination. He asked what the operational plan on the ground level was to achieve objectives. He also added that departments must work as cohesive clusters.

Mr D Mavundla (ANC) said that coordination was a serious problem. People grew more frustrated when infrastructure was not being taken care of. He asked if there were any mechanisms to improve inter-departmental relationships.

Mr J Maake (ANC) referred to informal settlement challenges and backlog, saying that there were also challenges regarding service providers in terms of inconsistency of service. He asked what constituted the resolution to this problem.

Ms Mugabane referred to the issue of integration. She raised the example of human settlement strategy, where they were beginning to give input into the expenditure of the house, so that it would be more energy efficient. This was a better roll out strategy. Economic and social infrastructure development would in the future involve a variety of departments, so there was a concerted effort to integrate.

Ms Mugabane said that she was aware of the problem of unequal service. She hoped to integrate the two services between Eskom and the municipalities better in the future.

The meeting was adjourned.

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