Eskom Conversion Draft Bill: briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
27 September 2000
DRAFT ESKOM CONVERSION BILL: BRIEFING

Documents handed out:
Outline of presentation
Eskom's Memorandum of Association of a Public Company
Final draft of Eskom Conversion Bill

SUMMARY
Since 1998, the government has been planning to convert Eskom into a company. The Eskom Conversion Bill due to be tabled in Parliament in the first quarter of 2001 would accomplish this objective. The Department noted that there may be arguments that this Bill is a precursor to privatisation but it insisted that this Bill has nothing to do with privatisation and everything to do with the proper structuring of Eskom. They pointed out that there has been no legal basis for the government to control Eskom up to now. The essence of the Bill is to change Eskom from a Commission to a company with government as the shareholder. They addressed briefly the main objections that would be brought against the Bill and maintained that this Bill would not jeopardise consumers or employees in any way.

MINUTES
At the scheduled start of the meeting, just a few people were present in the room. A call went out on the public announcement system, and most people turned up a few minutes later. There were issues in terms of what documents would be made available to members of the press and civil society. After initially handing out some documents to the public, the Committee officials asked for them to be returned. However after discussion with the presenters, they permitted them to be distributed.

The Chair indicated that the Bill had not yet been referred to the Committee though it had been approved by Cabinet a few weeks earlier. Nevertheless he had asked the team of presenters to appear before the Committee now as he wanted the Committee to have a chance to interact with the Bill from its earliest stages and this briefing would whet its appetite.

Eskom Conversion Bill: introduction
Mr Andile Nkuhlu, Chief Director of Restructuring in the Department of Public Enterprises, began by indicating the need to step back and remember 1994. He said that at that point, there was a serious need to look at public enterprises and their role as state institutions. When there was an examination of Eskom, the government had realised that there was a hiatus insofar as there had been no legal basis for the government to control it. Up until 1998, any government control was by persuasion rather than by any legal instrument.

Mr Nkuhlu noted the somewhat unique structure of Eskom which has both an Eskom Council, amounting to a stakeholder board, and a management board that actually runs Eskom on a day-to-day basis. There was an ongoing issues as to how to create an appropriate structure to give control over Eskom to government as a shareholder. In 1998, proposals had made their way through Cabinet and before Parliament which included an intention to make Eskom a company. There were instructions to the Minister to undertake processes to incorporate Eskom.

Mr Nkuhlu addressed three specific issues concerning the Conversion Bill:
- There will likely be some arguments that this Bill is a precursor to privatisation. He stated that this Bill has nothing to do with privatisation and everything to do with proper structuring of Eskom. He stated that Eskom has instructions on this basis and that the purposes of the Bill are more along the lines of helping to avoid non-transparent cross-subsidisation and have nothing to do with privatisation or any precursor to it.

- There may be allegations that the Bill would jeopardise consumers. He stated that the Act is very clear that electricity rates are determined in consultation with the Minister of Finance and the National Electricity Regulator. The matter of electricity rates is a detailed issue not dealt with in this Bill. Government is committed to defending the ability of this business to deliver cheaper electricity to the consumer. He stated that for factual purposes, there is a need to understand the process of price determination which is an internal process that has nothing to do with the Bill.

- With regard to the state being 100% owner and determining both taxes and shareholder dividends, he stated that appropriate organs would determine these rates.

Eskom Conversion Bill: briefing
Mr Denzel Matjila, State Law Advisor and Chief Director of Legal Services, stated that the Conversion Bill would simply amend existing legislation in certain ways, the most recent legislation on Eskom being the Eskom Amendment Act 126 of 1998, which the present Bill would see to its fruition. He stated that Eskom is already a tax-paying entity under the Taxation Laws Amendment Act 30 of 2000. It is run by an Electricity Council and by a management board appointed by the Electricity Council. He also mentioned that it faces audit requirements.

Mr Matjila stated that Eskom is being restructured, without a change in its status, in order to allow it to change from a commission to a public company. The Memorandum of Association provides further details on the structure of Eskom. The new entity would take over from the current entity in all respects, without any retrenchment. The new Eskom would be a corporate entity run by a Board of Directors, and the Electricity Council and Management Board would be dissolved. He noted that Eskom's unique nature would mean that it would be exempted from certain provisions of the Companies Act.

Mr Matjila referred to Mr Nkuhlu's comments that there would be no increase in the price of electricity. He stated that the advantages of incorporating Eskom outweigh the disadvantages and that incorporation would bring it in line with world trends and be to the benefit of all.

Discussion
The Chair noted that the Committee's discussion at this meeting was to be mainly on process and urged members not to jump the gun and begin dealing with the substance of a Bill that could be quite different once referred to the Committee. He indicated that it might not be useful to spend too much time on a draft not yet referred to the Committee.

Ms Taljaard (DP) added that from a procedural standpoint, this might well be something that would be inappropriate for the Committee to do in any case. She indicated that she wanted to know the timetable in terms of when the Bill would be likely to proceed and noted that the National Electricity Regulator and others would no doubt like an opportunity to comment. The Chair noted that he appreciated Ms Taljaard's comments that would help keep members focused on the right aspects and asked the Department to give an indication as to when they would table the Bill.

Mr Nkuhlu indicated that this was not certain yet but that the Department was negotiating for a place in the first session next year as a private bill. There was a desire to reduce the time the Bill would spend in formal processes. Thus the timetable should be the first quarter of 2001 but that this is not yet certain. The Department had missed the cycle for priority Bills of the current session. The Department had given some opinions on the matter of public hearings but that this was up to the Committee to decide. Mr Matjila added that the Cabinet had not yet given an indication as to how the proceedings on this Bill should unfold. The Department thought that 30 days would be reasonable for public comments.

The Chair noted that the Committee might try to have public hearings within a 30-day span but that the Committee would indicate in future how it would proceed.

Ms Taljaard asked if the Department could provide any update on the Price Waterhouse Coopers process as well as on the appointment of the new energy manager. Mr Nkuhlu stated that the second question referred to a normal process of filling a vacant post, albeit in a critical position and had no bearing on the process before the Committee. In terms of the Price Waterhouse process, Mr Nkuhlu stated that this matter is not totally divorced from the process before the Committee. It is about the structuring of generation and distribution and that there may be exchanges of information with other processes. The final report has been received from Price Waterhouse Coopers on the larger issues of energy policy and that these are complex issues. Giving legal effect to the present Bill will not jeopardise any other such processes. It simply makes Eskom a business and makes it transparent. The Bill is about a corporate governance issue more than anything else. He added that it will not exempt Eskom from being subject to shareholder compacts or the Public Finance Management Act. The Bill is simply about normal business principles.

A member indicated that he wanted to know more about the NER and how it is composed. Mr Nkuhlu explained that the NER regulates Eskom and electricity matters. He stated that the definition and precise powers of the NER are a matter for a separate briefing and that liberalisation means that there is a need for appropriate skills to know how to manage it.

A member noted that Eskom seems poised to make moves elsewhere in Africa and asked if there are any provisions in the Bill for it to be an international company. Mr Nkuhlu stated that the Chair of Eskom has been raising questions about the long-term role of Eskom in the future. He stated that Eskom collects transmission lines across Africa and is in a position like no other company. It is by far the greatest generator of electricity in Africa and thus can be a global company. This is at the heart of what is being debated. The vision remains to supply electricity on a cheap, sustainable basis along with delivery on social mandates.

Mr Nkuhlu added concluding words about the importance of taking account of changes in the industry. He stated that Eskom will remain the natural entity of the state but that its business strategy may involve going global.

The meeting was concluded.