Grid and non-grid electrification: Department briefing

Meeting report

Integrated National Electrification Programme

Mr Thabane Zulu, Director General: Energy, Department of Mineral Resources and Energy (DMRE), said the country’s electrification model required reconsideration and input from the Committee from time to time to help the DMRE better implement it. They were working very closely with ESKOM and municipalities on green energy, and had plans to enter into some agreements and thereafter to enter in business plans.

Mr Jacob Mbele, Deputy Director General and Programme Manager, DMRE, said the Integrated National Electrification Programme (INEP) was an initiative by the government to provide capital subsidies to municipalities to address the electrification backlog of permanently occupied residential dwellings. Nowadays, 87% of households in South Africa had access to electricity. The programme’s aims were two-fold. In the first instance, the Department helped attach communities to the national grid. In the second instance, help was provided to remote communities with basic energy sources. ESKOM was licensed in some municipalities, but in others the electricity was distributed through the municipalities. This initiative had started in 1991, when Eskom was responsible for managing and monitoring the electrification process. From 2001, the government had assumed responsibility for planning, funding, monitoring and evaluation of the electrification programme. The funds were gazetted on an annual basis under the Division of Revenue Act (DoRA).

There were a number of electrification policy guidelines which helped to ensure that funded projects fulfil the mandate of the Department. The “Suite of Supply” policy covered all project categories and was the fundamental policy that highlighted minimum technical aspects to be adhered to. The bulk infrastructure policy dealt with requirements for funding of substations and distribution supply lines. The informal settlement policy dealt with the steps to follow in sourcing funding for the electrification of informal settlement, and the non-grid electrification policy provided guidelines for the electrification of houses that were far from electricity infrastructure.

The programme fell under the energy programmes and projects within the DMRE. It had a planning team, capital programme team and inter-governmental relations (IGR) team. Formal engagements happened throughout the National Electrification Advisory Committee (NEAC). Its purpose was to advise on key strategic matters related to the electrification programme. The NEAC met on a quarterly basis. The stakeholders include the National Treasury, the Department of Human Settlements, Water and Sanitation, the Department of Cooperative Governance and Traditional Affairs, the South African Local Government Association (SALGA), the Association of Municipal Electricity Utilities (AMEU), the Municipal Infrastructure Support Agent (MISA), ESKOM and Strategic Infrastructure Project (SIP)10.

Funding allocation criteria had a rural bias and there were high backlogs for demand. Priority was given to completed low cost houses and continuing projects. There was also a focus on past performance, and money was channeled where it would be most efficacious. The allocation process was multifaceted. At some point there were requests totaling R50 billion, and the INEP’s budget was R5 billion, so the criteria for allocation were very stringent and exacting.

In respect of monitoring, municipalities submitted monthly progress reports. There were regional visits to projects based on a schedule or as required, based on project status. Project progress was monitored via a milestones report spreadsheet. Energy forums were held monthly or quarterly, where feedback was received from municipalities. Where municipalities were not reporting, non-compliance orders were issued.

Between 1991 and the end of March 2019, over 7.4 million households had been electrified and connected to the national grid, and 160 000 connected through non-grid technology. Regarding the number of households connected between 2014 to 2019, 1 250 000 on-grid connections were planned and 1 285 178 achieved. 105 000 off-grid connections were planned and 85 993 were achieved. Individual statistics for each province were detailed. It was noted that there was a lag in terms of numbers coming from municipalities - they started recording in July, but the INEP reported in financial years.

Challenges with project implementation included municipalities implementing non-contracted projects and the illegal occupation of houses. The underperformance in the KwaZulu-Natal (KZN) and Eastern Cape (EC) regions was due to late appointment of service providers and outstanding outages. Some municipalities had completed construction of projects, but they had not provided supporting documents. Also, municipalities still continued to change projects or plans without communicating with the Department prior to implementation. This trend was negatively affecting the expected targets.

In planning, there was a lack of infrastructure maintenance, lack of technical capacity in the municipalities, mushrooming of informal settlements, lack of long-term plans in municipalities, and some villages were far from the grid and sparsely populated and therefore only suitable for non-grid connections, which was not well received in some communities. Backlog figures were exacerbated by the growth of extensions near electrified areas, and the inability of certain municipalities to formalise them.

Some mitigation measures were applied. These included established project steering committees, regional forums, enhanced and tightened monitoring and evaluation through contractual arrangements and ongoing discussions, with reassurance regarding funds to alleviate the historic infrastructure rehabilitation backlog. The current programme budget was projected to increase from R5.2 billion to R6.2 billion.

Discussion

Mr M Mahlaule (ANC) said he was hopeful that the Department was on the right track. The criteria they used for allocation was very commendable. Those found in rural areas were poor and they were making a judicious decision in electrifying their towns and villages. They should improve, however, on how they distributed grid electrification. The municipalities had not done well -- they delay in appointing service providers. Why was this so difficult for them to do? The Department must dole out punishments to those who were lax. After 25 years of democracy, to imagine people without electricity in rural areas was a shame, and a way should be found to attend to this.

Ms V Malinga (ANC) referred to the funding and implementation model, and said it was worrying that the Department was funding ESKOM, but ESKOM was not reporting back to them. What were the consequences for ESKOM in accounting for the grant the DMRE gave to them? On bulk infrastructure policy, was the Department funding ESKOM to operate sub-stations and if so, were they able to do that given the recent load-shedding? On stakeholder engagement, the DMRE should bring the Department of Education in. On programme performance, non-grid was the prerogative of the department. Only 16,875 households were connected in 2017/18 -- could this number be improved on? If local communities hijacked or stopped local projects, did the Department ensure that they went through?

Mr D Mthenjane (EFF) remarked that the Committee was convinced by the report, and believed the Department was sincere in its electrification efforts. However, there were areas of underperformance, and specifically issues with late appointments of service providers, and he asked who was responsible for implementing these providers. What was Department doing for the very poorest in South Africa? On monitoring, it was understood that they had limited resources, but what were they doing to solve this issue?

Department’s response

Mr Zulu said that proposals would be taken on board as the Department continued to review its implementation model. They had structured stakeholder arrangements that were cognisant of the interests of different parties, but they also had their own internal monitoring arrangements. Once agreements were reached, implementation was carefully monitored. A challenge had been their reliance on monthly reports, but full reporting was a human capacity challenge. They did not wait until urgent issues arose though, and failure to comply with standards allowed the Department to intervene to a point. If there was a failure to strictly monitor implementation, it would have a direct impact on the Department’s performance.

ESKOM’s core business was to service and maintain the infrastructure it. There was a misalignment through the non-existence of infrastructure, and the Department’s aspiration was increased connectivity of households. It needed to ensure there was, at least, a plan to develop this infrastructure. The money available was used mainly for connections instead of for constructing infrastructure. The DMRE had a direct responsibility here. It was their policy to be biased towards the needs of the poorest, but to that they needed to ensure they had a cogent poverty policy. They also relied on municipalities to enforce their own indigenous policies. They tried to ensure that they provided grants to these municipalities.

Mr Mbele added that ESKOM implemented in areas where they were a licensed distributor. The Department’s contract, however, allows them to go even as far as to audit. They insist that the grant they provide to ESKOM does not go into their bigger company projects. If houses were occupied illegally before they were completed, it became impossible to go into that area and electrify it. These incidents did affect their capacity in these areas.

On non-grid solutions, it had been found that most people would rather be on the grid. They expressed reluctance when the Department offers to provide non-grid solutions.

Because of their limited resources, they were re-examining the programme now that the Department of Energy had been combined with Mineral Resources. They might be able to tap into those resources as part of the initiative.

Mr Khorommbi Bongwe, Chief Director: INEP, said that the Department had indicated that before the end of June, all appointments must have been made. It was a challenge that the INEP was also experiencing as a programme.

Further discussion

Ms C Phillips (DA) asked for a breakdown of those municipalities which were having trouble with the implementation of electrification programmes. She commented that the Department would not electrify homes in illegal settlements, but suggested that this surely resulted in illegal settlements appropriating electricity from the grid. Would this not place undue stress on transformers?

Mr K Mileham (DA) asked how big the backlog for people requiring electrification was. What was the level of compliance on monitoring and reporting like from the municipalities? Municipalities were delivering reported connections but were spending less than half what they were being allocated in their budgets. What was being done to assist them to spend it properly? What was the Department doing  to assist municipalities to obtain enhanced technical capacities? ESKOM had also underspent on their allocation by R1 billion in the last two years, yet the Department had highlighted the infrastructure maintenance that was urgently needed. How were they helping them to invest properly? Also, what was meant by outstanding outages?

Mr S Kula (ANC) asked what specifications municipalities had to meet were in order to qualify for funding. When was universal electrification in the country likely to be achieved? What was being done to overcome the challenges of a lack of technical capacity? In the Eastern Cape, there were many problematic elements in the local government sphere, and if they continued to pump money into provinces, was it not ideal for the Department to take over the management instead?

The Chairperson commented that some information relevant to Members’ questions had been related during the presentation.

Department’s response

Mr Zulu said that the information presented had been provided to Members as an overview, but elaboration on certain points could be given.

Regarding illegal occupation, once residents were already there, there was a greater responsibility to accommodate their electrification needs than if they were less established. The first stage in addressing this issue therefore was to avoid land being occupied illegally in the first instance. The DMRE’s model dealt with properly constituted households that had legal approval. It was slightly out of their jurisdiction to deal with illegal settlements because they were, in the strictest legal sense, not legally recognised as settlements. They were out of the Department’s purview.

Technical capacity formed part of the criteria the Department used to measure the state of readiness of municipalities. The challenge was to measure that capacity properly as far as possible. However, this technical skill was actually decreasing, rather than increasing across South Africa. Perhaps they should have a core engineering team that could intervene as needed. They were exploring options and were trying to deal with it. There had to be a national drive to address the education and training issues in order to develop the technical know-how that was needed. Part of the review process also involved revisiting supply chain management solutions, questioning what the best supply chain mechanism could be used to meet their goals?

Mr Mbele added that the Department was having discussions with municipalities on how they might be able to implement non-grid solutions for informal settlements.

Referring to ESKOM spending, he said bulk infrastructure development lasted several years. There were orders that were placed which were delivered at a later stage, and money was allocated for these orders but not immediately spent.

Outstanding outages were scheduled outages needed for maintenance etc. Migration made universal access a moving target, as people moved around. One would never be able to reach all of these people, so they aimed for 90% access nationwide.

Mr Bongwe insisted that the Department was still committed to reaching universal access by 2025. Rural bias was indeed still the key allocation criterion. There was a backlog of 2.4 million access requests.

The Chairperson remarked that Members sometimes do not know what they were talking about when it came to public services. He had many questions, but he thought it of particular importance to ask what was being talked about when they talked about an electrification programme. For instance, was there a difference between an electrification programme and an electricity installation programme? In striving to achieve goals, one could use the correct data and parameters, but still arrive at flawed outcomes. When one considered the current state of ESKOM, general electrification could be improved, but thereafter there may still be no electricity. How quantifiable were these outcomes that the Department talked about? When a decision-making structure was too big, and one talked about associations that one had, its seemed like there was an incongruity between the collaboration one professed between organisations and the fact that the National Treasury was still cutting the budget, was there no potential for a direct link between cuts and allocations that could address specific issues? Was what was allocated what they would need in order to meet their targets? If it was not, what would they need? He did not want to act without knowing what financial muscle the Department needed. Thereafter one could see, comparatively, how reasonable the outcomes were in their having, or not having, been met.

He agreed on the Integrated Development Plan -- sometimes they were indeed just compliance standards. There were often drawn-out compliance processes that restricted what they were trying to do. If their IDP was a component of this, how did they make a determination of success in the programme? How did they manage the cost structure in their procurement process? To what extent was incorporation with mineral resources going to be part of their consultation process? What was free and what was cost to the recipients of the electrification service? If they were doing this for free, how did they ensure that a culture of non-payment did not develop?

Department’s response

Mr Zulu responded that here, the Department was dealing specifically with an electrification programme. It was indeed an important question to seek clarity on. It was the only programme the country had. It was a collaborative programme with institutions that could help to best implement it. The Department’s responsibility was to ensure that the programme was a success. The Department received a grant from the national government. On their side, there were no returns on investments but there may be returns on investments for beneficiaries. It was difficult to comment on the competency of ESKOM and local governments without the input on of the Minister, but the Department’s responsibility was to ensure that its investments were able to be judiciously accounted for.

National Treasury used different methodologies to arrive at decisions on budget cuts. He was not entirely sure on what basis they had arrived at this decision, and he admitted being biased towards his own area of expertise, though he acknowledged that the government balanced the different kinds of needs across the entire country in a way that it deemed appropriate. The IDP had become a central strategy direction, and there was a need to ensure that it was not misaligned with the IDPs of municipalities. This misalignment would inevitably lead to under-performance.

Mr Mbele commented that the electrification programme was meant mainly to connect households to the electrical grid. The programme helped remove the burden the poor faced in paying for a connection fee. About 6.6% of the tariff that went towards infrastructure had to be reallocated for repairs to dilapidated infrastructure. The grant covered 50kW of electricity to households, but for anything after that they had to pay. Regarding value for money, the Department did a comparative exercise in cost per connection. If anyone was going to connect at a cost higher than the Department’s calculations, they had to explain why they needed to do so.

The Chairperson remarked that representatives from Mineral Resources often run away from questions of budget. Then they come late and complain that they have not received the budget.

Mr Mbele added that the backlog for households still to be electrified was 2.4 million. They had to commit in the next five years to a million connections. Universal access was realistically scheduled for at least 2030, and the budget was broadly aligned with that goal.

The Chairperson remarked that he would not force the speakers to give non-theoretical answers to his question about an ideal budget. It was important to grill people when they came to the Committee. He appreciated the speakers for their commitment to the programme, and said their information did assist the Members, and they hoped that they could make a contribution. It was important for Parliament to find a way to assist in developing the project. There was a lot of political work that needed to be done.

The meeting was adjourned.