Electricity distribution industry sector and rehabilitation of infrastructure: Inter-Ministerial Task Team update; with Deputy Minister

Meeting report

Committee concerns over absence of Ministers

The Chairperson noted that initially he had planned to have a bigger meeting arising from the presentation which had been received a while ago from the Department of Energy (DOE), the South African Local Government Association (SALGA) and Eskom on the rehabilitation of electricity infrastructure. It was clear to the Committee that to get some finality on the matter, the Department of Public Enterprises (DPE) needed to come to a joint meeting because Eskom reported to it. Eskom was part of what the meeting was trying to resolve. During that presentation, Members had been informed of an inter-ministerial task team (IMTT) which had been established and undertaken work. According to a report received at the time, it should have finished and submitted a report by 13 October. The Committee had asked the IMTT to return after submitting their report and inform the Committee how the matter had been resolved. 

The Chairperson said he had been told that the Department of Cooperative Governance and Traditional Affairs (COGTA) was the leading department in the IMTT. The presentation had made it clear that Treasury would have to be involved in finding a solution. The Chairperson of the Standing Committee on Finance had been approached, but because it was the end of the year, the Standing Committee had stated that it would be difficult to be part of this meeting, and had sent apologies.

The Chairperson stated that he had planned the week before for the DPE to be part of the meeting, but it had been unable to attend, so he had decided to continue with the joint meeting between the Portfolio Committees on Energy and COGTA. He expressed his appreciation that the Deputy Director-General from the DPE was present, adding that he understood that the enquiries would continue the following week.

The Committee had wanted ministers to be present, but he had received apologies. Last week the Committee determined that it should go ahead with the meeting and were assured that Members of the task team would be present to give an update.

He closed by saying that COGTA had looked at this matter previously in the Select Committee in the National Council of Provinces (NCOP). The Portfolio Committee on Energy’s interest stemmed from being informed that there had been challenges in electricity supply in the past, which Eskom stated had been overcome. The Portfolio Committee wanted to discuss whether there would be disruptions in electricity supply in the future, since it had been assured that this would not happen until at least 2021. During that discussion, it had become clear that while issues of supply and generation seemed to have been resolved, there were serious challenges with the repair of the distribution network. When the Committee asked what was wrong with the distribution network, the issue of reticulation -- and the dispute around it – had come to the fore. It was important that this issue be resolved so that there would not be an outage due to transmission or distribution. The system had to work along the entire value chain.

Mr K Mileham (DA) expressed concern that the Minister of COGTA was not at the meeting, saying that there had been a commitment from him to attend the meeting and answer questions, since he was the Chairperson of the IMTT. He asked how the Committee could ask questions, and how MPs could fulfil their mandate of holding the executive to account, without the Minister of COGTA being present. The Committee could not ask questions about COGTA to the Deputy Minister of Energy. He expressed concern that the meeting was embarking on a fruitless exercise because the minister deemed his other duties more important. The DA objected to the minister’s absence, on record.

The Chairperson asked Mr Mileham to return to the matter when the Chairperson of the Portfolio Committee on COGTA, who would be late, arrived. He recognised the difficulty Members were going to have with the presentation, as political questions would arise which ministers had to respond to. The Minister of COGTA was the lead minister in this matter. In the meantime, Members must allow space for representation.

Mr C Matsepe (DA) said the reason the high-powered meeting with the relevant ministers had been requested was because at the previous meeting, the presenters did not have solutions. If this presentation did not address the issues which had been raised at the previous meeting, there would be no solution. The relevant Ministers had to be present, as the decisions and solution lay with the Ministers.

The Chairperson suggested that Members receive the presentation and return to this discussion at a later stage, saying that he shared their concerns. The Committee wanted to find a solution to the problem.

Mr X Ngwezi (IFP) said that it was very disappointing that the Minister was not there. He had yet to meet him in the Committee, despite being a Member since June. The Minister always sent apologies when requested to attend. At the last meeting, the Minister had indicated he would attend this meeting. He was not sure if the presentation would assist the Members in the absence of the Minister and Deputy Minister of COGTA. He thanked the Deputy Minister of Energy for availing herself and the DOE for being willing to be a part of solutions to problems confronting South Africa. The problem was political in nature, and he questioned whether there was any other way of addressing this matter. Was there a need to listen to a presentation which would leave Members with more questions that would not be addressed? He understood the apology of the co-Chairperson who would be arriving late, but this was also a concern because he had been involved in organising the meeting. If he was chairing another meeting, perhaps he was aware that the Minister was not present at this one. He felt that the other meeting had become the co-Chairperson’s priority, with this one being a second or third priority. He expressed his disappointment, but said that he wanted to listen to the presentation.

The Chairperson suggested that the Committee receive the presentation, and then return to the discussion.

Mr E Mthethwa (ANC) said he understood the concerns of his colleagues. The presentation still talked about structural matters which had been discussed at the previous meeting. What the Committee had agreed upon was the question of political will. The meeting was meant to craft resolutions and a way forward. He asked what the way forward was, stating that he was not necessarily running away from the meeting but asked his colleagues to find a way to resolve issues without shutting the meeting down. He suggested hearing the presentation.

The Chairperson said the co-Chairperson had spoken to him about his difficulties with the meeting.

The Chairperson said he was with the Members regarding the technical aspects and process nature of the presentation. At the heart of the issue was whether a solution had been found. The task team should have finished its work by then to provide solutions to the Committee. If no solution had been found, the Committee could assess what to do. He suggested receiving the presentation, having a discussion, then deciding on the way forward.

Ms Thembi Majola, Deputy Minister of Energy, said she felt that the concerns raised were valid, but that she welcomed receiving the report since the Portfolio Committee on Energy had not received it, because COGTA led the IMTT. She was interested in the report, because after preparation it had gone to the Presidential Coordinating Council (PCC), and she wanted to know if there were any outcomes from there that would assist them in terms of the process. There would be an opportunity to propose a way forward with both Committees on the same page. From the DOE’s point of view, this was a very important meeting. She expressed interest in hearing what came out of the PCC, as well as COGTA’s perspective. She hoped to get some wisdom from COGTA Members, as she expected COGTA to lead proceedings.

The Chairperson said that the Committee would agree on the way forward after the presentation and asked for the presentation to start.

 

COGTA on constitutional challenges related to electricity reticulation.

Mr Tebogo Motlashuping, Acting Deputy Director-General: COGTA, said the presentation would give an update on the kind of progress made and where the organisation was. There had been a dispute about who should be responsible for reticulating electricity – the municipalities or Eskom. Discussions between COGTA, Eskom and SALGA had not yielded the desired result, hence the establishment of the IMTT.

Mr Motlashuping elaborated on the composition and objectives of the IMTT. It had been established to deal with the constitutional, structural and systemic challenges in electricity reticulation. It was meant to deal with the disputes arising from different interpretations of the constitution and the Municipal Systems Act. The constitution gave municipalities the authority to reticulate, whereas Eskom felt that the Energy Act allowed it to provide electricity in the municipal areas. Section 160 gave powers to the municipalities, whereas the Electricity Regulation Act allowed the National Energy Regulator of South Africa (NERSA) to issue licences to Eskom for the distribution or trading of electricity. These discussions would be finalised in the IMTT.

The main issue had been to provide clarity on who had executive authority to reticulate electricity in municipal spaces. Some Members of the IMTT believed that since the constitution superseded other laws, municipalities had the right to distribute electricity and not Eskom. Eskom had indicated that its interpretation was different.

Municipalities have expressed concern that the constitutional authority lay with the municipalities and  was being undermined by Eskom, which municipalities viewed as a service provider. Eskom derived its mandate from subordinate legislation and the service it provided should be done through a service delivery agreement that had to be signed between Eskom and the municipalities. As it stands, municipalities were unable to levy surcharges or exercise credit control in Eskom supply areas. There were challenges around tariff parity between municipal and Eskom supply areas, as well as conflict over supply areas. There was no mechanism to cut off electricity for non-payment.

Mr Motlashuping said the IMTT acknowledged that this was a complex matter that needed clarity. The roles and responsibilities of Eskom and municipalities had to be clarified. There needed to be clarity on the constitution providing executive authority to municipalities and the subordinate laws which allowed Eskom to reticulate electricity to its supply areas.

Two presentations had been made to the PCC. One proposed seeking a declaratory order to give clarity on the two interpretations of the law. This proposal was not supported by the PCC. The PCC had issued a directive to appoint an advisory panel to provide final clarity on the conflicting interpretations. The findings of the advisory panel would then provide a way forward to the IMTT on the structural and systemic issues. The Minister had analysed the terms of reference for the appointment of the advisory panel. The Minister had indicated that the panel would be appointed by 15 December and would then be given two months to complete its work. It would present its findings to the IMTT for deliberation and finalisation.

Mr Motlashuping elaborated on the structural and systemic challenges in electricity reticulation. Where Eskom reticulated in a municipal area, the package did not include public lighting. Eskom would connect households, but the municipality would be responsible for public lighting. The existing policy did not address the provision of public and street lighting, but the IMTT had requested the DOE to develop a policy on the provision of public and street lighting by the end of September 2018.

He spoke about the role of municipalities in renewable energy, mentioning that the City of Cape Town had taken the Ministry of Energy to court to challenge its refusal to approve Cape Town’s request to buy renewable energy from independent power producers. This would be considered as part of the energy policy work the DOE was currently undertaking. 

With regard to areas of supply, NERSA was implementing the Geographic Information System (GIS) project review and updating schedule 1 of the electricity distribution licences for municipalities and Eskom. Once it was updated with the corresponding polygons and the NERSA Web-based GIS was uploaded, it would provide a clear picture of the areas being supplied by Eskom and by the municipalities. GIS would assist in finalising boundaries between Eskom-supplied areas and the municipalities.

Mr Motlashuping addressed systemic challenges, saying that Eskom’s credit control mechanisms for municipal bulk accounts were not aligned to the Municipal Finance Management Act and the Public Finance Management Act. There was a need to rationalise municipal electricity tariffs for notified maximum demand and related penalties, and for the reconciliation of municipal debt to Eskom.

The Eskom board had made concessions, such as reducing the interest on overdue municipal accounts from prime plus 5%, to prime plus 2.5%. Payment terms had been extended from 15 to 30 days for municipal bulk accounts. Money paid by municipalities to Eskom should be written off against the capital amounts, and not against interest. The rationalisation of municipal tariffs, from 11 to three, had been approved and would be submitted to NERSA for finalisation. Municipalities were required to determine a Notified Maximum Demand (NMD) which, if exceeded, would result in interest being charged. NERSA was reviewing the calculation of penalties on NMD so that municipalities were not penalised.

Regarding the reconciliation of municipal debt, National Treasury had agreed to do a consolidation of all amounts owed to Eskom from defaulting municipalities. National Treasury felt that municipalities should not be paying old debts. National Treasury and municipalities were working together with COGTA on affordable debt rescheduling. 

Mr Motlashuping concluded his presentation by referring to the progress made in resolving constitutional, structural and systemic challenges; the appointment of an advisory panel by the IMTT; and Treasury facilitating more informed payment agreements and on facilitating engagements with affected municipalities.

 

Discussion

Ms B Maluleke (ANC) expressed her appreciation for the presentation, although noting that it was a repetition of the presentation made to COGTA. The COGTA Committee had expected progress on what the IMTT had been doing. In her view, it was not clear whether the IMTT had tried to resolve the issue of who had the power to do what between Eskom and the municipalities. If municipalities could not levy as a sole mandate, it was a problem, as municipalities would have problems raising revenue if they could not levy. She asked what the progress was on this issue. The other issue was that municipalities owed Eskom a lot of money. The challenge was that the interest rate Eskom charged municipalities was too high. She asked whether Eskom could write off some of the municipal debt and whether there had been any agreement on this.

Mr Mileham asked when IMTT had been established and how often it had met, commenting that there had been relatively little progress over the past few years. Regarding the recommendations, he asked who was on the proposed advisory panel, expressing concern that it could be stacked with Eskom board members, for example, which would not provide a fair or balanced solution to the problem.

He addressed the structural issues in the presentation. He noted the question of municipalities purchasing from other service providers, and asked the Deputy Minister of Energy to advise the Committee when there would be policy clarity on this and when municipalities would be able to purchase from other suppliers.

He expressed concern that the GIS mapping system would reinforce the status quo and would not solve the problem of one area in a single municipality being supplied by the municipality and another by Eskom at different tariffs. This should be addressed, and NERSA needed to look at it.

He expressed concern about the municipalities’ debt to Eskom, saying that municipalities would never be able to pay back the debt plus interest to Eskom. The Eskom board should write off unrecoverable debt, since the longer this went on the more municipalities suffered and electricity tariffs were inflated. Eskom, the DOE, the Minister of Public Enterprises and the IMTT should take hard decisions and look at what municipalities could afford.

He was happy that National Treasury was getting involved, but it would have been helpful if National Treasury had shared that information. He asked how the Committee was expected to take political decisions and how it could claim to fix this if it did not know what the issue was.

He addressed COGTA, saying that several municipalities were facing a throttling of electricity supply. He asked whether payment arrangements were affordable, and how many municipalities facing throttling were currently under administration. Did the municipalities in question have financial recovery plans prepared by National Treasury which they were adhering to? If councils were not adhering to these plans, why had the councils not been dissolved, as per the constitution. There was a clear financial crisis, where municipalities had taken money owed to water boards to pay Eskom, resulting in threats of water cuts to municipalities. He asked when Minister Van Rooyen would act in terms of Section 139 of the constitution, saying that action was needed but there was a lack of political will.  

Mr G Davis (DA) asked whether the 60 defaulting municipalities would be placed under administration, and asked for a list of them. The public should be made aware, so they could hold the municipality to account. He asked why the president’s coordinating council (PCC) had not sought a declaratory order, and what the thinking was behind this. He felt that the court’s independence made it the best body to decide.

He asked whether the advisory panel could complete its work in two months and over the Christmas period if it was appointed only on 15December. He asked whether that was enough time and if the Committee could get a concrete assurance that its work would be done.

He asked on what grounds the Minister of Energy was not allowing municipalities to buy renewable energy from independent power producers.

Mr M Matlala (ANC) said that many of the issues had been raised in previous meetings some years ago, and were interrelated.  He expressed concerns that Members of the Committee were digging for answers from the same Department without receiving them, noting that it did not augur well. He thought that the Deputy Director General would have come to the meeting with a programme on how to resolve the crisis, and bemoaned the lack of progress after the report had been presented to the IMC and the PCC.  He asked for a promise that the problems would be addressed in the next financial year, expressing frustration that people constantly came to him with electricity problems even though he did not work for Eskom.

Mr N Masondo (ANC) said that what the Committee wanted was a sense of progress, which had not been forthcoming. The meeting needed to restate what the areas of responsibility were, what the contradictions were and how these contradictions were being dealt with. He felt that the meeting was not taking Members forward, and that the ministers needed to be there. He asked if the ministers had met and how they were planning to deal with matters. The Committee needed SALGA’s input to progress.  He stressed that while everyone agreed on the need for electricity, there were other challenges - the economy was not growing, unemployment  was rising, and inequality and poverty were broader issues that had implications for the raising of revenue. He asked how this would be dealt with going forward, stressing that there needed to be a forward-looking approach. There had to be a sense that matters were being dealt with.

He referred to Eskom’s delivery of electricity in Johannesburg, where there had not been much success in collecting revenue, and where Eskom had passed the responsibility for collecting revenue on to the City of Johannesburg. The problem had been there for years and where progress was not made, it complicated matters. He felt that there needed to be a meeting with the ministers, or at some point the government would be facing court cases. The issues would not disappear and the sooner a proper meeting with all stakeholders happened the better.

Ms N Mthembu (ANC) expressed concern over the lack of urgency at the meeting, stressing that it was the festive season and people would return home and face electricity issues. She referred to reports about SALGA taking the Minister of Water and the DOE to court. People were asking questions about the government. COGTA was not adhering to its 2014 call for a ‘back to basics’ approach, which had instilled confidence that COGTA was turning around. The Committee wanted real answers. Members could not go back to their constituencies without answers. Ministers should attend and make sure that there were answers.

The Chairperson asked co-Chairperson Mdakane to ask for a meeting where all the ministers would be present, at the end of this meeting. He asked how people could discuss interpretations for months, commenting that when there was not a capacity to resolve, one set up processes.

Mr Mthethwa said that he thought the meeting would tell Members about the roles and responsibilities of Eskom and the municipalities. SALGA felt that it was being undermined by Eskom. He asked whether those discussions were continuing, or whether everything had shifted to the IMTT. Eskom claimed to have done a lot of compromising for the municipalities to function, but the municipalities were not coming on board. The Committee needed to find a solution and the executive should assist in this process. He asked whether meetings were continuing between SALGA and Eskom and asked them to summarise the dispute so that when the executive came on board, it would deal only with the deadlocks.  Was Eskom really undermining SALGA, or was SALGA unwilling to ‘play ball’?

Mr Ngwezi said that to an ordinary South African it would be an insult that the government, through one party, was frustrating itself. He felt that if government delayed solving these problems they would create a bigger problem in the future. People were impatient. He appealed for departments to resolve the matter.

Mr Matsepe said that this problem would never be resolved because of money. The money for these entities was not meant to address the problems discussed. He mentioned investigations of two municipalities in Sekhukhune which had lasted two weeks. Due to a laissez-faire policy, officials had boasted to the public that no one would take them to task. A month later, a letter from the province had informed the council that investigations had been called off. Investigation had revealed that projects which were being investigated had been endorsed by the district municipality. He asked whether district municipalities were ‘babysitting’ local municipalities, and whether districts were allowed to do this.

Mr Matsepe reiterated that the Committee needed ministers present to deal with issues, commenting that there were traces of their actions at the local level. If the Committee did not face the truth and tell ministers to their face, it was facing a losing battle. Nothing could be done if money was looted. Some ministers went down to that level and got involved in the bad things that happened, so the powers that be must come to the meeting and answer questions.  

Mr Bhekumuzi Stofile, SALGA NEC Chairperson, agreed that the Ministers should come and engage. In August, when SALGA presented its intention to seek a declaratory order through the Constitutional Court, the PCC had resolved to establish the IMTT. The IMTT had met and resolved that there should be a report at the PCC meeting in November. In between, the IMTT was meant to meet. The IMTT’s November meeting with the PCC had sat with only the COGTA minister present, and with all the other affected ministers absent. He asked what the report would say, noting that the PCC had said ministers had to participate with COGTA leading. After various discussions, a compromise had been reached to report to the PCC in the absence of other departments. Departments and entities could have been given an opportunity to deliberate on concerns.

Mr Stofile felt that the matter should have been processed at the executive level, which was why the Committee was sitting with a problem since the COGTA Minister could not take a decision on behalf of other ministries. That was why the process was being subjected to an advisory body. He complained of a lack of vigour in resolving or attending to these issues. Some work should be done with the responses given to the Committee. SALGA wanted leadership to prevail, and a proper interpretation to be given in terms of the constitution. He felt that what Members were seeing was a report crafted on the eve of the PCC meeting, and that it was mostly a repetition of what had already been said. Most ministers had not been at the IMTT meeting. He said that SALGA would participate, but that it had to raise these concerns because it had been frustrating.

The Chairperson asked if the panel had been a recommendation of the IMTT. What had the PCC said about the recommendation?

Mr Stofile said that the PCC had agreed with the presentation, that the panel had to be established. SALGA had to make a submission to COGTA on the makeup and terms of reference of the advisory panel. COGTA  was busy with this.

The Chairperson asked Members if they could go back to responses to questions which had been asked earlier on, noting that the Deputy Minister of Energy was the only Cabinet member present. He said that when she agreed on a date, he would make sure the Deputy Ministers and Ministers were there. He asked for responses to the specific questions asked by Members.

Mr Stofile said that he would respond to questions which were related to his knowledge and area of work, and that he would escalate other questions.

Mr Davis expressed confusion about what the Committee was going to do, since it had asked lots of questions which could not be answered. He asked what the point of the meeting was.

The Chairperson asked Mr Davis if he wanted the Committee to decide on whether to continue.

Mr Davis replied that he was merely venting his frustration.

Mr J Dube (ANC) suggested that the meeting be adjourned, because there was no use stting and discussing issues without a way forward. The Committee wanted a progress report. He said there were challenges around political will. The issues discussed were very serious and affected many municipalities. He suggested rescheduling the meeting for when the Committee would get a progress report, so that their input was based on the outcomes. He did not think proceeding with this meeting would assist.

The Chairperson insisted co-Chairperson Mdakane spoke before closing. He expressed concern that if there were delays in finding solutions, municipal debt and the cost of infrastructure would grow. He said that the first time the Committee had received a report on the state of infrastructure, the cost of repair had been R40 billion, but the next time it had risen to R70 billion. He asked Mr Mdakane to speak about a meeting time and getting the ministers to attend.

Mr Mdakane said that it was their last week at Parliament, so the meeting should happen before the end of the year or early the following year. The Committees should consider a bigger meeting, since it involved four Committees – Water and Sanitation; Energy; COGTA and Treasury. He said that there would always be limitations since Members of Parliament were policy makers, not implementing agencies. He suggested a meeting in the second week of January when Members came back, and before the State of the Nation Address (SONA). He proposed holding an all-day meeting. Ministers should attend because it was their duty to do so.

He praised the hard work of SALGA in persuading the IMTT to work on this, saying that it should have been done long ago. The Committee needed to put its foot down and have a meeting with a clear agenda, and added that if it had to report to Parliament to take an appropriate decision, it could do so. He expressed concern at the lack of progress, saying that there had been a similar report for a year. As a last resort, Parliament could summon ministers to attend, which he felt was an extreme way to deal with colleagues. The administration of the Committee should sit down, plan for the following year and invite people who could add value to the meeting. He felt that the management should be tightened, and shared the frustration of Members and SALGA. Ministers must be compelled to attend.

The Chairperson said that everyone agreed on a follow up meeting with all ministers present.

Mr Davis thanked Mr Mdakane, as Chairperson of COGTA, and agreed with the sentiments. He suggested scheduling the meeting for early February to allow the opportunity to deal with the advisory panel report, which would be done by the end of January.

The Chairperson thanked Mr Davis for the contribution, and said that the Committee would then take the report into account as it would give them time to discuss it among the Chairpersons.

Deputy Minister Majola responded to a Member’s question about the planned energy mix, and said that if municipalities decided what they were going to do on their own, there were a few things to consider. Municipalities would need infrastructure and would need to look at cost management. Some municipalities such as Cape Town may be able to do it, but not all municipalities.

Ms Majola addressed the question of street lighting, which returned to the issue of the budgets and who handled it. She questioned the logic of the government in the 1990s, when it had said development happened at the local level, but the budget of local government had been only 10 percent. If municipalities got revenue from services, the implication was that the tariff kept increasing, and this would strangle the economy and make Eskom unviable.

A point was needed where everything came together holistically. She questioned the capacity of many municipalities where they were told to do something. Government made policy, but had no direct oversight on implementation. She concluded by commenting that most rural areas were Eskom areas, and in terms of delivery, Eskom was defaulting around 70 percent. There was not much revenue for Eskom in these areas, and no real incentive either. When people wanted services, they went to municipalities, not Eskom. She stressed that there needed to be a real discussion, and asked whether what the country had today was still relevant compared to the 1990s, when there was a lot of capacity.

The Chairperson expressed his hope that discussions would continue and that colleagues would be prepared for the next meeting.

The meeting was adjourned.