Integrated National Electrification Programme: Department of Energy & South African Local Government Association briefing

Meeting report

Chairperson’s opening remarks
Ms Z Faku (ANC) apologised on behalf of the Chairperson and informed that he was running late and would be joining the meeting shortly. He asked the delegation from the Department of Energy (DoE) to commence with their presentation.

Presentation, Integrated National Electrification Programme (INEP) – Department of Energy (DoE)
Mr Mthokozisi Mpofu, Acting Deputy Director General: INEP, DoE, thanked the Committee for the invitation. He asked the delegation to introduce themselves.
Mr Mpofu explained that the electricity industry was categorised into three areas - generation, transmission and distribution. Eskom took up 93% of electricity generation but new Independent Power Producers (IPPs) were also entering the scene. Electricity regulation was regulated by the National Energy Regulator of South Africa (Nersa). Eskom however was tasked with 100% of the transmission load. Only a handful of municipalities played a role in this regard. Both Eskom and municipalities played a vital role in the distribution aspect of electricity. The funding model consisted of funding from the fiscal and from donors. Fiscal funding was allocated to the Grid while donor funding was primarily for non-Grid electrification.

The DoE had been mandated to ensure and secure sustainable provision of energy for socio-economic development. INEP was the Department’s programme responsible for achieving universal access to electrification in the country by 2025. INEP was responsible for planning, project management and funding the bulk infrastructure (e.g. MV lines and substations), grid and non-grid new connections for households that could not afford to pay on their own to receive access to electricity. Access to electrification had increased from 36% in 1994 to 88% in 2014 with over 5.9 million households being connected to the Grid between that time. Most installations were done in the Eastern Cape, In KwaZulu-Natal (KZN) and in Limpopo. To date, the provinces with the highest backlogs were Gauteng (28%), KZN (26%) and the Eastern Cape (18%).

Mr Korombi Bongwe, Acting Chief Director: INEP, DoE, thanked Mr Mpofu for the introductory remarks and background. His presentation would be looking at the DoE’s successes and challenges encountered with the INEP programme.

He explained that in the period from 2002 to 2013/14,  82 517 households were supplied with non-grid technology (Solar panels – Renewable Energy) mostly in the Eastern Cape, in KZN, Limpopo and in the Northern Cape. In the future, non-Grid electrification would not only be implemented through concessionary areas but in other areas as well through the Master Plan Strategy. With regards to the performance of INEP in 2013/14, the DoE had a target for 260 000 for Grid connection and 15 000 for non-Grid connection. INEP managed to achieve 306 773 connections in total.
Concerning the role of Eskom and municipalities and the current INEP programme, Mr Bongwe said that 75 % of the backlog was in the Eskom supply area and 25% in municipalities supply area, due to the fact that Eskom had more rural areas to supply. Eskom however needed to strengthen the network capacity in order to eradicate the backlog. There were however difficulties with auditing Eskom, largely due to utility and internal processes which were very time consuming. On the other hand, municipalities had a backlog of 25% which was mainly around local towns. Municipalities needed to shorten and expedite their procurement processes which were currently between 9 -12 months before connection infrastructure projects started after funds been transferred to municipalities. In addition, municipalities needed to address the issue of ageing infrastructure through their revenue collection. Some of the challenges with the municipal programme were that of:

•Poor quality of data
•More applications than what has been allocated
•Late signing of contracts and submission of annexure
•Unreported funds for the previous years
•Duplication of reports
•Lack of technical and project management capacity within local municipalities

For the 2014/15 financial year, R 1.1 billion was allocated to the Municipal Programme, R 2.9 billion to the Eskom Programme and R 96 621 for non-Grid. A total of R 4.149 316 was allocated as the baseline for INEP. For the 2014/15 financial year, municipalities had a planned target for of 70 979 connections while Eskom had a target of 180 031 connections. He acknowledged however that there were still some serious infrastructure backlogs at municipalities.

With regards to Free Basic Electricity (FBE) as it applied to INEP, the FBE was managed and allocated by the Department of Cooperative Governance and Traditional Affairs (Cogta). Some of the municipalities did not have indigent register for years or if there was one, it was not updated and this created problems with identifying beneficiaries for FBE. However illegally connected households did not qualify for FBE. The sustainability of the non-grid project depended on FBE. Monthly payments were therefore required for operations and maintenance. In addition, poor households were not benefiting from the FBE because municipalities were not paying the monthly fee to FBE service providers.

Non-Grid electrification did not depend on Eskom or on Grid networks. It was considered in areas which were far from the Grid or had an unfavourable topography. Some areas are virtually difficult to electrify through the Grid. Currently, the programme was running in Limpopo, the Eastern Cape and KZN. To date, over 82 517 households have been connected with non-Grid electricity. One of the opportunities that was available through the non-Grid programme was that of Fuel Cell Implementation.  With regard to oversight, Project Managers and Project Coordinators in the regions visited the projects before funds could be allocated in order to verify the existence of the project. However not all the projects could be constantly monitored and audited due to insufficient financial and human capacity. Projects allocated over R 5 million were prioritised for technical audits. Some of the challenges faced by the INEP were:

•Slow delivery of electrification projects by Municipalities and certain Eskom regions
•Lack of skills within Municipalities – technical and project management
•Slow roll-out of non-grid connections due to negative political perceptions and practical short comings
•Annual budgetary process force projects to be planned and designed on an annual basis and not on a multi-year (project completion) basis
•Insufficient Bulk infrastructure for electrification

Mr Bongwe gave a progress report on the Matatiele Electrification Task Team which was set up by the previous Committee on Energy. The task team consisted of DoE, Cogta, MISA, the Department of Public Enterprises (DPE), Eskom and municipalities. The Committee focused on building capacity within the municipality in order to smooth the rollout of the electricity programme, backlog information and consideration of an alternative energy source and the rollout of FBE within the municipality. The feedback was that the electricity backlog was currently at 55% and approximately 1829 connections were not electrified at Makhoba Ward, the estimated costs for the Ward were at R 48 million. Mzongwana Ward had approximately 2902 connections not electrified and R 14 million was the approximated costs for electrification.
Remarks by Chairperson

The Chairperson explained that the reason why the presentation by DoE had focused on Matatiela was that the Committee during the fourth Parliament had received complaints from the community of Matatiela around issues of electrification. A task team was therefore set up to look into these matters however there had not been much progress in this regard, and the Energy Committee of the fifth term therefore invited the DoE to give Members a progress report on the work of the task team.
The Chairperson said part of the biggest problems identified by Committee was about rollout and the maintenance of already connected areas. Eskom had indicated that responsibility of maintenance was that of the South African Local Government Association (SALGA). These issues needed to be resolved.
Briefing by SALGA on INEP
Mr Chris Neethling, Member: National Executive Committee, SALGA, thanked the Committee for the invitation. He noted the Chairperson’s concerns and agreed that such issues needed to be addressed. He explained that the purpose of the presentation was to provide the Committee with a municipal perspective on the progress made on INEP and to identify key challenges and make proposals to address these.

Mr Tubatsi Moloi, Specialist: Electricity, SALGA, explained that municipalities had the constitutional mandate to manage electricity reticulation. Electricity reticulation was a local government competence stipulated in the Constitution. Municipalities had a mandate and duty to provide basic services to all households under the Municipal Systems Act. However the municipal distribution license excluded Eskom customers and supply areas.

He acknowledged that municipal performance had been declining and this was a cause for concern. There were however a number of challenges which were contributing to this decline and these would be dealt with throughout the presentation. Metropolitan municipalities however had been performing well. Municipalities had been able to electrify over 12.1 million household but backlogs still remained with a total of 3.3 million households still needing to be electrified. With regard to financial allocations, municipalities were allocated R 1.1 billion and Eskom was allocated R 2.9 billion. The increased allocation would enable the expansion of the Integrated National Electrification Programme (INEP) to increase the number of households connected to the Electricity Grid and also the number of Non-Grid connections.

Some of the key challenges from a municipal perspective were:

•Unclear roles and responsibilities between Eskom and municipalities
•Lack of integrated planning between Eskom and municipalities
•Inadequate backbone infrastructure
•Municipal finances / Electricity tariffs
•Division of Revenue Act funding allocations
•Shortage of skilled staff
•Inadequate INEP funding policy

The INEP Occupancy Rule was also a serious challenge which needed to be done away with. The INEP policy required that new housing developments achieve an 80% occupancy before allowing electrification of the development to begin. It was understood that this rule had been discarded by the National Electrification Advisory Committee (NEAC) but Eskom still insisted on applying this rule before commencing on projects. Serious impact on these projects with strong community resistance to moving to houses not serviced. Another concern was the Eskom Levy on Electrification Projects with municipal funding. Eskom levies a charge of 5% of the cost of a project undertaken in its areas by a municipality with INEP and its own funding.

In response to these challenges, SALGA had initiated a Business-Adopt-a-Municipality programme. SALGA was looking at Metros and secondary cities to partner with and support smaller municipalities. MISA had deployed skilled staff to these priority municipalities.  SALGA had also drafted a position paper on the Electricity Distribution Industry (EDI) Reform. Some of the recommendations from SALGA were as follows:

•DoE should allow and fund upgrade of existing infrastructure required for electrification projects
•Consideration for the 80% requirement for occupancy of housing developments before any electrification can commence be done away with
•DoE policy should provide the full cost of connections in areas provided by both Eskom and municipalities
•Better coordination and improved capacity between Eskom and municipalities
•Reforming the electricity distribution industry

Ms Jean De la harpe, Executive Director: Municipal Infrastructure Services, SALGA, explained that other urgent matters included municipal debt to Eskom (Bulk Sales), electricity cable theft and EDI Reforms. She acknowledged that municipal debt to Eskom for the purchase of bulk electricity had increased significantly and this led to municipal services being compromised. SALGA was committed to working with relevant stakeholders to ensure that there was a consistent servicing of outstanding debt by municipalities and that the financial viability and sustainability of municipal electricity operations. SALGA met with Eskom to request Eskom to extending the outstanding bulk electricity account settlement window period. Municipalities were having difficulties paying their bills due to a number of reasons, these included: cashflow problems due to a declining revenue base and non-payment by households etc, illegal connections, aging infrastructure, incorrect billing due to meter reading problems, high rates of interest charged by Eskom, Eskom not willing to invest in upgrades due to municipal arrears and active deceased accounts.

Various support had been made available to municipalities in the form of training, policy and strategy support and capacity support. Local Government had experienced huge revenue loss due to electricity cable theft, the impact of electricity theft was devastating for smaller distributing municipalities. The National Electricity Theft Working Group had been established to champion this at the highest political level to bring about change in curbing electricity theft. With regard to EDI Reforms, she said SALGA had prepared a position paper on EDI reforms with a proposal on an alternative approach to the reforms within the current constitution. SALGA and municipalities were committed to a successful electrification programme and a sustainable electricity distribution industry.

Mr Francois Schippers, Executive Mayor, Saldanha Bay, talked to the 80% occupancy rule. He said it was understood that this rule was discarded but the NEAC insisted on applying this rule before commencing on projects. This had serious implications on the implementation of projects at municipal level, community resistance being the biggest concern. Citizens did not fully understand these “red tapes” and sometimes this resulted in protests because community members saw these delays as bad service delivery. Municipalities were not in a financial position to resolve these issues. He said the Committee needed to seriously lobby for the removal of this rule.

The Mayor said the main issue was around the non integrated approach to service delivery planning. There were many cases of one ward having many service providers; one party would be the municipality, another party would be Eskom. These service providers did not provide collaborated services for these Wards and this created a lot of tension among community members.

The Chairperson thanked the DoE and SALGA for their presentations.

Discussion
Mr L Greyling (DA) thanked the DoE for the presentation. He argued that the biggest issue within the electricity sector was that of distribution. Since 2010 there had been no progress made in the restructuring of the sector. Municipalities did not have the revenue to undertake such a task. SALGA needed to put more pressure on government to deal with the underlying structural problems. With regards to the different tariffs being charged at cities and rural municipalities respectively, he said Eskom needed to be forced to sign service delivery agreements with municipalities to level the costs of tariffs. On the non-payment of municipal debt, he said this was largely a political issue and it would therefore be difficult for municipalities to tackle this issue on their own. The issue needed to be dealt with on a national level. To what extent could other energy sectors such as gas, be put in place to deal with the issue of illegal connections? What was Eskom’s plan for recovering debt from its distribution customers?

Ms T Mahambehlala (ANC) asked the DoE about the Electricity Master Plan. Was this plan also heading to the “radical transformation” direction to which the President spoken of in his State of the Nation Address? Was the Master Plan facilitating the country’s move towards a radical energy mix? In its presentation, the DoE had mentioned that not all its projects could be monitored because the department did not have sufficient human capacity in the monitoring aspect. What were the exact skills shortages within the DoE? A question was also posed to SALGA; did municipalities have the sufficient technical capacity for the implementation of projects? She argued that from the presentation it seemed as though SALGA was simply there to complain about Eskom whereas there were capacity challenges within municipalities themselves.

Ms Mahambehlala said that the role of SALGA was to assist in the development of capacity at municipal level. What had SALGA done to improve and build capacity at municipal level? With regard to municipal debt, she commented that these unpaid municipal tariffs heavily contributed to the financial problems faced by Eskom. What had SALGA done to ensure that Eskom recovered these funds from municipalities as a matter of urgency? She asked SALGA about the recommendation made to the DoE that “the 80% requirement for occupancy of housing before any developments took place be removed”, would this translate to existing meters being removed? She asked whether the 13 private distributors indicated in the presentation were IPPs.

Ms N Louw (EFF) raised a concern around the “Acting” senior officials from the DoE who came to brief the Committee on important matters but could not give full accountability because of the nature of the titles. The matter of “Acting” senior officials within the DoE needed to be sorted out. She asked that DoE provide the Committee with a list of municipalities that were experiencing electrification challenges. How did the DoE plan to deal with these challenges? How could the Committee assist?

Mr J Esterhuizen (IFP) said Eskom needed to strengthen its network capacity. Municipalities were the biggest customers of Eskom. He argued that a lot of money was being spent at big Metros due to illegal connections and electricity theft. These issues needed to be sorted out.

Mr Greyling asked about fuel cell technology; how would installation of this system cost and was it a viable option to implement?

Mr Mpofu explained that the reason why his position was of “Acting” was because the vacancy for Director General was advertised the past weekend and the post would be filled. The list of affected municipalities was available and would be provided to the Committee. There was a multiplicity of challenges within the DoE; some could be tackled by the DoE and some needed the intervention of Department of Public Service and Administration (DPSA) and National Treasury. On the question on the shortages around human capacity for monitoring and evaluation of DoE projects, he said the DoE needed to have an organic goal and this needed the commitment of Treasury and the DPSA; money needed to be made available to fund these skills. He agreed that the DoE in some cases was faced with a skills shortage issue and this was why not all DoE projects could be monitored. He explained that when the DoE was established the DPSA did not approve all the posts on its organogram because it did not have funds to fund all the posts.

Mr Mpofu addressed the question on the fuel cell technology and explained that the current model was still a pilot to test the technology. Currently the project was proving to be extremely expensive compared to Grid and other systems the DoE had. It was therefore still early for the DoE to decide whether it would commit to the technology or not. On the EDI restructuring, he said the DoE was aware that something needed to be done with regards to restructuring. Most of the issues raised by SALGA were issues the DoE raised during the EDI process but unfortunately there were no takers at the time. However, more people were now moving towards supporting the process. Most of the challenges which were being talked to were as a result of the current funding model, which needed to be relooked at. SALGA had admitted that municipalities were using funds allocated for electricity revenues to fund other programmes and this was a serious problem. Each service was supposed to be self-sustaining. National Treasury needed to come in and zoom into this aspect. With regards to capacity at municipal level, he said one of the main challenges was that skills were migrating from municipalities to the private sector. Municipalities were also slow in implementing projects partially because of challenges with procurement. On the question about the Master Plan, the plan that the DoE was speaking to during the presentation was the Electricity Master Plan whereas the plan that the President referred to in his SONA speech was the broader Integrated Energy Plan (IEP), which spoke to issues such as the energy mix.
Mr Mpofu discussed the question on the 80% rule raised by SALGA and said the DoE did not have a policy of that manner therefore municipalities needed to handle the matter with Eskom. It was also the responsibility of municipalities to ensure that communities understood processes and refrained from vandalism. The DoE was committed to assisting municipalities in addressing some of the problems, in partnerships with MISA. He explained that a task team had already been established by DoE to look at the challenges at municipal level and how they could be addressed. In addition the DoE was working with graduate students and placing them at municipalities were their skills and expertise was needed.

Mr Greyling said there needed to be a Master Plan for the restructuring of the electricity industry. Was this one of the DoE’s priorities? Was the DoE at least putting together a discussion document on the matter? He argued that workshops needed to be held with all relevant departments and stakeholders.

Mr M Mackay (DA) thanked SALGA for the outstanding report. He argued that SALGA had every right to be critical of Eskom because SALGA experienced the fallouts from community members first hand. He asked whether individuals who had been disconnected from the Grid, perhaps due to financial reasons, would still be receiving FBE. The use of electricity was not only a fundamental need but also a fundamental right. He argued that the solution to dealing with illegal connections was a technical one. He suggested that SALGA also be included in the hearings on the EDI paper.

Mr R Mavunda (ANC) asked about the indigent registers at municipalities for FBE beneficiaries; who was supposed to identify these beneficiaries and was this not the responsibility of municipalities?

Mr Esterhuizen agreed with Mr Mavunda that the registration of indigents was a problem; how were these registrations being monitored and controlled?

Mr Mpofu responded to the questions on the indigent registers and said it was the responsibility of each municipality to update the register at least twice a year. He replied that the FBE allocation was an unconditional grant transferred to municipalities. Municipalities then decided how they would re-distribute the allocation. It was however unfortunate that some municipalities used these allocations for other programmes and there was no mechanism in place to hold municipalities accountable. The FBE was a monthly allocation for indigents and whether or not an individual has been connected, they still should receive the FBE allocation.

Mr Mavunda argued that it was problematic that the DoE was allocating funds to municipalities for indigents without making municipalities account for how they used the money. Funds for FBE should not be used for other things.

Mr Mpofu agreed with Mr Mavunda. He said such issues would be resolved once all the funding issues had been resolved. The DoE had developed a policy that outlined how the FBE should work however funding was controlled by National Treasury and the Cogta. When the concept of FBE was initially introduced the DoE was more than willing to run with it but it was not part of the DoE’s mandate. Therefore after the allocations had been made, the DoE could no longer be involved. Concerns had been raised with Treasury on how some of these FBE allocations were being re-directed by municipalities.

Mr Moloi said the reality on the ground was that the electricity industry was unfavorable towards municipalities. SALGA was not necessarily complaining about Eskom but the presentation was to look at how issues could be resolved collectively. On the questions on capacity constraints at municipal level, he said skills workshops were rolled out among municipal staff and municipal managers, particularly around matters of energy and electricity. SALGA was looking to partner up with the DoE in this regard.

With regards to municipal debt, he replied that Eskom was part of a municipal forum with SALGA were these issues, among others were being raised at managerial level. He said the Joint Executive Committee of SALGA and Cogta sat on a monthly basis to address the issue of nonpayment of rates by municipalities. He said SALGA was not advocating for the removal of meters, municipalities carried the costs of every new house built. On the question on IPPs he said the 13 independent producers were licensed distributors; they were licensed by the National Energy Regulator of South Africa (Nersa) for reticulation and trading.  

The Chairperson thanked DoE and SALGA for their contributions and thanked Members for their engagements with the presentations. He said both Eskom and SALGA needed to do what they were mandated to do, in turn; this kind of coordination would enhance the implementation of projects. What were the targets for rural versus urban rollouts? He concluded that the Committee needed to make its oversight work more efficient.

Adoption of Committee Minutes
The following Committee Minutes were adopted without any amendments: 10 July 2014 and 24 July 2014. Mr Esterhuizen moved for the adoption of the minutes, Ms Louw seconded the adoption.

The meeting was adjourned.