EDI Holdings Restructuring: Briefing; Adoption of Committee Report on Budget Vote 3

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Cooperative Governance and Traditional Affairs

03 May 2010
Chairperson: Mr L Tsenoli (ANC)
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Meeting Summary

Electricity Distribution Industry Holdings briefed the Committee on its restructuring process. The Company was established in March 2003 by the Department of Minerals and Energy for the sole purpose of facilitating the restructuring of the national electricity distribution Industry. Its mandate was to lead the industry, guide and influence the restructuring process, and establish viable Regional Electricity Distributors. Municipalities and Eskom would transfer their electricity distribution businesses into the Regional Electricity Distributors, whose shareholding would be split between Eskom, national and local Government. The municipalities should provide the service authority and the Regional Electricity Distributors would be the service provider, with enhanced regulation by the National Energy Regulator of South Africa. The relationships would be governed by service delivery agreements as contemplated by the Municipal Systems Act, and would contribute to Government’s aims of decentralisation and easier access for customers. Municipalities would charge customers on electricity sales, and dividends would reflect growth and performance. The Strategic Implementation Plan prioritised protection of energy, trading surpluses and surcharges, compensation, credit rating guarantees, transfer of assets and liabilities, and board and governance representation. 147 of the 187 municipalities had already signed agreements. Because municipalities were operating without enabling legislation, it was important to get such agreements signed. Electricity Distribution Industry Holdings’ challenges included a continued delay on the Constitution Seventeenth Amendment Bill [B8 – 2009]. There were also problems of ailing and aging distribution infrastructure and maintenance, backlogs, lack of asset management strategies or plans, insufficient investment in existing and planned networks, lack of regulation to enforce licensing of distributors, and limited coordination. A rescue plan had been designed to assist. It was noted that only 75% of the country had access to electricity. Each province’s percentage of household access to electricity was highlighted.

Members asked why damaged lines and insufficiently maintained lines were not repaired by money allocated from the Company budget for backlog issues, whether there was a set deadline for the negotiations between Electricity Distribution Industry Holdings and the South African Local Government Association on proposed constitutional reform, and sought clarity on how the Company was funded and whether the Company had discovered a reason for electricity pricing discrepancies in the different municipalities and regions. They asked also why the Regional Electricity Distributors had not been established yet, how the Company would address the problem of skills shortages in the country in terms of public sector electricity, and whether problems with funding would affect the efficiency of the municipalities, Eskom and Regional Electricity Distributors.


Meeting report

Electricity Distribution Industry (EDI) Holdings: Update on EDI Restructuring
Ms Phindile Nzimande, the Chief Executive Officer, Electricity Distribution Industry (EDI) Holdings (Pty) Ltd, briefed the Committee on the Company’s restructuring process.

 

EDI Holdings was established in March 2003 by the Department of Minerals and Energy for the sole purpose of facilitating the restructuring of the National Electricity Distribution Industry in accordance with the requirement of the Energy White Paper and subsequent Cabinet endorsements in this regard

Ms Nzimande said that the prime purpose of the Company was to structure itself to streamline the electricity distribution industry so that more investment could be placed in the six wall-to-wall public Regional Electricity Distributors (REDs) that were to be established. One of its other mandated responsibilities was to lead the industry in the restructuring process, to establish viable REDS, to ensure efficiency improvements of the REDs, and to be the central advocate of the restructuring process.

Ms Nzimande highlighted several challenges the Company faced, including a continued delay on the Constitution Seventeenth Amendment Bill [B8 – 2009 in which it was working closely with the South African Local Government Association (SALGA) and the Department of Cooperative Governance and Traditional Affairs (COGTA). Amongst some of the challenges, inconsistent electrification performance was noted: only 75% of the country had access to electricity. Each province’s percentage of household electricity capacity was highlighted:

Western Cape: 86%
Northern Cape: 82%
North West: 78%
Gauteng: 76%
Free State: 75%  
Mpumulanga: 74%
Limpopo: 74%
KwaZulu-Natal: 66%
Eastern Cape: 60%

The different electricity tariffs were highlighted. These differences were predominantly because of the different challenges faced by the various municipalities and their specific issues in terms of infrastructure and maintenance.

The Strategic Implementation Plan included five priority issues of protection of energy, trading surpluses and surcharges, compensation, credit rating guarantee, transfer of assets and liabilities, and board and governance representation. These issues had to be resolved for EDI Holdings to move forward. It was planned that any outstanding problems would be negotiated. 147 of the 187 municipalities had already signed. Because municipalities were operating without enabling legislation, it was important to get the agreements signed. There had already been ring fencing of Eskom and the municipal distribution business, and this should be completed within the following year.

 

Problems included ailing and aging distribution infrastructure and maintenance, backlogs, lack of asset management strategies or plans, insufficient investment in existing and planned networks, lack of regulation to enforce licensing of distributors, and limited coordination. A rescue plan had been designed to assist.

EDI Holdings said that the Cabinet had approved submissions on the implementation of REDs and now awaited legislation to formalise the process and see it implemented.

Adoption of Committee Report on Budget Vote 3
The adoption of the Committee report on Budget Vote 3 was postponed to the following week because of time constraints and the scheduling of another meeting in the venue.

Discussion
The Chairperson asked whether there was a deadline for the negotiations between EDI Holdings and SALGA on the proposed constitutional reform noted in the briefing presentation.

Ms Nzimande said that as yet there was no set deadline and that the reform was still being debated.

Ms N Mdaka (ANC) thanked the EDI for its presentation and asked why there was a lack of control of vegetation around electricity infrastructure. She said that a large part of the Company’s budget was pledged for dealing with backlog issues; she asked why damaged lines and insufficiently maintained lines were not remedied by this money.

Ms Nzimande said that there was regular maintenance work done on electricity infrastructure but that current authorities might be defaulting on performing this maintenance thus some of the vegetation around the infrastructure grew out of proportion costing the taxpayer more. Thus 70% of money went towards repairs and 30% towards maintenance. She said that it was important that this situation be turned around for the betterment of the quality of the electricity delivery in various regions.

Mr W Doman (DA) thanked EDI Holdings for its presentation and said that it seemed that the Company was doing well under steady leadership. He asked how the Company was funded and whether the Company had discovered a reason for electricity pricing discrepancies in the different municipalities and regions. He asked why no RED had yet been established and how the Company would address the problem of skills shortages in the country in terms of public sector electricity.

Ms Nzimande said that EDI Holdings was funded by Government through a surcharge on electricity charged to consumers. She said the reason there were differences in the pricing of the various municipalities and regions was due to the fact that different regions had different logistical issues and problems but the national tariff structure remained largely the same across the country. She said that skills shortages would be addressed via redeployment of experienced employees to assist with training and development through schools training and training programs established in municipalities.

Mr J Matshoba (ANC) asked what was being done in rural areas as the briefing focused predominantly on urban areas.

Ms Nzimande said that Eskom was in charge of regulating rural municipalities and they were best suited to report on the extent of the work that was being done in the rural areas in terms of rural electrification and assisting unregistered informal settlements get registered and receive service.

Mr T Botha (COPE) asked whether REDs would solve the problems of funding arising from the decentralisation plan of the Government to improve delivery to the people. He asked whether the sharing of funds between Eskom, municipalities, and REDs would have a negative impact on the efficiency of each stakeholder.

Ms Nzimande said that the Company would seek money through fundraising initiatives and still benefit from Government sponsorship. She said that there would not be a negative effect on service provision and that the long term gains would outweigh short term stumbling blocks. 

The Chairperson said that it seemed as though SALGA was being ambivalent about the constitutional reform process and asked why this was the case.

Mr Duma Nkosi, Chairperson, Electricity Distribution Industry Holdings (EDI) Board said that the Company could not speak on behalf of anyone else or any other entity.

Ms M Wenger (DA) said that in her view municipalities were not receiving enough money from Government to deal with the issues affecting their areas.

Mr Botha said that he did not believe that the implementation of REDs would necessarily solve the problems affecting municipalities and Eskom.

Mr Nkosi said that the briefing was not made to point out faults but merely to highlight the status quo as it stood.


The meeting was adjourned.


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