Intergovernmental Fiscal ReviewDepartment of Minerals and Energy: Briefing

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STANDING COMMITTEE ON ECONOMICS AND FOREIGN AFFAIRS
20 May 2003
INTERGOVERNMENTAL FISCAL REVIEW
DEPARTMENT OF MINERALS AND ENERGY: BRIEFING
Chairperson: Mr BJ Tolo (ANC, Mpumalanga)


Documents handed out:
Intergovernmental Fiscal Review, Chapter 12

SUMMARY
A presentation by the Department of Minerals and Energy focused on the current status of the electricity distribution industry restructuring process. This was complex and costly, but was nevertheless moving into its implementation phase with the establishment of six regional electricity distributors (REDs). These would be owned jointly by the municipalities concerned and would facilitate efficient electricity supply at local government level, thereby contributing significantly towards local economic development.

MINUTES
Ms N Magubane, Deputy Director-General, Electricity and Nuclear Energy, Department of Minerals and Energy (DME) presented Chapter 12 of the Intergovernmental Fiscal Review. After appraising members of the background to restructuring the electricity generation, distribution and supply industries, she then advised them of the current status of the process.

Two hundred and thirty four municipalities licensed to distribute electricity were supplying sixty per cent of consumers, and Eskom the remaining forty per cent. However, sales volumes indicated that Eskom accounted for sixty per cent of units sold and municipalities the remaining forty per cent. This was because Eskom generally supplied large industrial consumers, while the focus of municipal electricity supply tended to be household consumption. The large metropolitan areas accounted for seventy five per cent of municipal sales. This had serious implications for the provision of equitable services for consumers across the country. The inadequate maintenance of infrastructure networks and significant disparities in tariffs also presented challenges to effective restructuring.

The vision was to consolidate the South African electricity distribution industry into six financially independent and viable Regional Electricity Distributors (REDs), operating under the control of a holding company, Electricity Distribution Industry (EDI) Holdings. This would facilitate efficient, reliable service provision to consumers and delivery on Government's commitment to free basic services for all South Africans. It would also ensure competitive tariffs within a rationalised tariff structure across the six REDs envisaged, encouraging a cross-pollination of best practice between utilities. Against this background, prices to poor households would be capped and special arrangements currently in place for large industries honoured.

Discussion
Mr M Bhengu (IFP, KwaZulu-Natal) wanted to know how Black Economic Empowerment (BEE) would feature in the restructuring process, and whether the municipalities would buy electricity from the REDs and then sell it to consumers.

Ms Magubane replied that the municipalities would themselves need to determine what functions of the electricity retail service could be outsourced to BEE operations. She confirmed that municipalities would purchase electricity from the REDs for sale to their consumers.

Ms C Nkuna (ANC, Northern Province) asked about the municipal levy on the wholesale electricity tariff. Were all municipal billing systems adequately geared for collecting this?

Ms Magubane explained that the municipal levy was a mechanism for charging electricity consumers more than the cost of supplying the service. The levy generated surplus funds for the subsidisation of other municipal services and general operating costs. Under the new system this municipal levy would fall away. Where this was likely to impact negatively on overall service provision municipal shortfalls would be addressed by way of national grants or the imposition of an electricity levy at a different level.

In closing, the Chair wondered whether the provinces were happy with this arrangement. Ms Magubane replied that, historically, the provinces had not been involved with electricity distribution. Presentations had been made to them on the restructuring process and the response had been generally positive.

The meeting was adjourned.

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