Integrated National Electrification Programme (INEP) Implementation: Department of Energy, Salga and Eskom Briefing

Meeting report

Department of Energy and Eskom Presentation
Dr Wolsey Barnard, Chief Director: Integrated National Electrification Programme (INEP), Department of Energy (DoE) briefed the committee on where INEP was and the challenges it faced. He presented the position of the Department and Eskom while the South African Local Government Association (Salga) later presented its own briefing on challenges specific to municipalities.

The Medium Term Expenditure Framework (MTEF) funding model derived from the fiscus and was split into grid and non-grid allocations and the latter in turn was split into municipalities and concessionaires. The funding was spread over a three year period so projects that started in a particular year could finish in the years after the funds had been allocated. Eskom and the municipalities had completed 220 000 connections as at January 2012.  Eskom had 42 infrastructure projects, mainly in KwaZulu-Natal (KZN) and the Eastern Cape funded, while the municipalities had 45 projects funded. Eskom was allocated R1.8 billion while the municipalities received R1.1 billion for 2012/13. (For a detailed breakdown of the allocations for 2012/13 for projects and connections see slide 7 of the presentation). Special interventions undertaken were to tackle island formations in KZN. 5 673 islands had been addressed and planned interventions for 2011/12 and for 2013/14 would amount to 3382 and 7001 respectively. There would be flagship interventions in Engcobo, Umsinga, Maluti-a-Phofung, Masibambisane Rural Development Initiative and King Sabata Dalindyebo Municipality where infrastructure was severely lacking. 

The challenges that INEP faced were
•Irregular submission of reports by municipalities
•New municipal councillors and officials had not signed contracts timeously putting the majority of
   municipalities four to six months behind schedule
•Internal municipal procurement processes which took a long time
•The municipalities’ use of electrification funds to upgrade existing networks
•The INEP operational budget not sufficient to plan, implement and monitor projects effectively
•Limited funds – INEP received 50% of the funding it required as was projected in 2003/4
•Municipalities changed the contract conditions after having signed off on them
•Increases in the electrification costs were twice the inflation rate
•The shortcomings in the Electricity Distribution Industry (EDI)
•A decrease in real terms of the electrification allocations

A key issue was to improve the way a project was managed as there was a serious lack of skills in both technical and managerial skills while there had been new councillors inducted at the local municipalities. The EDI challenges needed to be addressed and multi-year budgets and planning needed to be allowed by Treasury. The infrastructure was in a bad state which put pressure to allocate funds for operations and maintenance rather than for connections. 3.4 million households were without electricity. It was important that projects were recognised as being of a long term and not a short term nature. A serious problem was the need to tighten control and performance of municipalities. A National Electrification Indaba would be held in Durban on the 15th and 16th March in line with the United Nations “Access to energy” campaign.

The electrification of Kliptown was done by City Power and Eskom. City Power did the 1 220 backlog connections while Eskom did 150 new houses. Eskom had in 2010/11 allocated funds for 320 houses to be connected but the houses had not been built and these funds had been rolled over. The electrification money had been transferred to the municipality but had not been spent.

The long procurement time period by municipalities of seven to eight months was a challenge as in effect funds were only allocated when the financial year ended. Information needed to be shared and therefore the Department had held 13 workshops around the country. There had been cases of misconduct where the full amount had been paid for equipment but second hand refurbished material had been supplied.

Salga Presentation
Mr Sandile Maphumulo, SALGA representative and also Head: Electricity, Ethekwini Municipality, said there was greater co-operation between the DoE, Eskom and municipalities. He said the capacity of municipalities differed vastly.

The 2011/12 program of provincial electrification projects had 363 projects planned with 40% complete with a number of municipalities under-performing. (A detailed provincial breakdown could be found on page 2 of the Salga presentation)

INEP in the rural areas had a 75% backlog. These were areas where Eskom was the licensed distributor and Municipalities accessed funds from the DoE and the provincial government for projects. Infrastructure was handed over to Eskom for operations and maintenance upon completion of the projects. Non distributing municipalities had 50% vacancy rates and were consequently over reliant on consultants. Consultants were thus a challenge as they were working for monetary gain and not for the public good.

INEP in urban areas was only a fraction of the backlog, mainly in the 177 municipalities licensed for distribution. The DoE did not allow the upgrade of existing infrastructure which was required for electrification projects and were reluctant to fund infill projects and also required 80% occupancy in housing developments.

INEP in informal urban settlements consisted of the majority of the remaining 25% backlog. The DoE provided for the electrification of the settlements plus the fitting of prepaid meters. He said transit camp funding should be made available. There was a need for planning alignment regarding electrical reticulation. This would require the removal and recovery of prepaid meters from informal settlements and the re-installation in the new houses.

There had been an outcry by municipalities on the funding of electrification projects because Eskom got funding for the connections but municipalities did not. In addition electrification did not make any money for the municipalities while some municipalities had severe cash flow problems. Municipalities and Eskom should be treated equitably.

On the funding application process, he said it would be nice to have an idea what the municipalities could get regarding the three year Dora allocation. Funding was only effectively available from 1 July meaning that they effectively had nine months to do the work unless they could get bridging finance which in any case would put them in non-compliance with the applicable legislation.

He noted that the Municipal Finance Management Act 2003 (Act No. 56 of 2003) (MFMA) procurement process needed review, that there were differences in the capacity of municipalities and that there was a need to share capacity to provide technical support, that the INEP offices could be the coordinating and planning alignment point, that the provincial housing department approve multi-year housing development plans and make it available to the DoE for alignment of electrification projects and that the DoE be allowed to upgrade infrastructure. He strongly recommended that the 80% occupation requirement of houses be lifted.

Ms Ayanda Noah, Managing Director: Distribution, Eskom, shared the concerns on the slow pace of electrification because in addition, illegal connections were a danger to life. She said Eskom’s plans were derived from the Integrated Development Plans (IDPs). She said the bad state of the infrastructure was a challenge.

Discussion
Mr K Sinclair (COPE – Northern Cape) said there was a need to seek a different funding model as the current one had too many loopholes and challenges. What was the position of Regional Electricity Distributors (REDS), as they might be a possible solution? He said the security of energy supply needed to be addressed. He wanted to know what role the Development Bank of Southern Africa (DBSA) should play in funding issues to ensure that value for money was received. What was the provincial contribution to electrification?

Mr A Nyambi (ANC – Mpumalanga) wanted further elaboration on the indaba program.

Ms E van Lingen (DA - Eastern Cape) said infrastructure backlogs lay at the local government level. There was a lack of delivery and maintenance. Maintenance budgets had been cut at Coega to pay salaries. She had asked previously about serviced sites and proclaimed areas.

Ms B Abrahams (DA – Gauteng) wanted more detail on informal settlements. What was the purpose of transit camps?

Mr D Gamede (KZN – ANC) said the 75% rural backlog was a serious indictment. Action plans with time frames was needed. The 45% municipal connection rate was also not acceptable. He supported calls for new funding models and said that the budget should address and reflect the backlog. He said 12 challenges had been listed which indicated serious problems and plans had to be put in place to eliminate at least 3 challenges per year. New councillors and differing financial year ends should not be an issue or an excuse. He hoped that the Indaba would be attended by the representatives of the 75% of rural people with no electricity. He said political infighting over the appointment of contractors should stop.

Dr Barnard replied that the inputs from the members could be used as inputs to the indaba. He said the cost of electrification had increased and that if they continued at the current rate they would lose the battle. The idea of an Indaba was not to get a new strategy, it was mainly a need to do things differently, and, for example, purchases had to be done in a different manner as nowhere did megaprojects run on an annual basis. Municipalities were paying up to four times the cost for the same thing. Similarly consulting entities needed to trim the price of their contracts. The Indaba was not to knock anything but to dust off processes and refresh them. Companies were seeking a compromise on the multi-year budgets so that they could go ahead and commit capital in the knowledge that they would be repaid in the later years. Provinces were not contributing to electrification formally. The provincial energy forum of the KZN had been launched recently and the Western Cape had engagements from the provincial forum to help implementation. The agenda for the Indaba was to allow for political input followed by input from implementers like municipalities and Eskom followed by input from individual players like the manufacturers and industry and lastly input from communities. He said electrification was not an industry challenge it was a socio-economic challenge.

Ms Noah said 2012 would be a crunch year for the challenging energy situation and would continue to be tight for the following two years. Eskom had been using the gas turbines extensively to meet requirements and that Eskom had to ensure that Kusile and Medupi power stations were up and running as scheduled. In addition there was aggressive demand side management and it had enlisted Independent Power Producers to assist with the supply side. As the 200 000 connections per annum were mainly domestic, there was not an immediate risk. She said that she would send Mr Gamede a program to show where Eshowe stood in connection with islands in KZN. She had visited Nongoma and the community had voiced their disappointment leading to the development of a planned program to sort out the island issue in KZN. The backlogs in deep rural areas would require the initial installation of infrastructure like substations which needed to be done before any connections could be made.

Mr Maphumulo said the existing municipal infrastructure was currently overloaded and this weakened maintenance routines.

The meeting was adjourned.