Independent Electricity Management Bill (PMB): Department response

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Mineral Resources and Energy

18 February 2020
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

The Portfolio Committee on Mineral Resources and Energy received comments from the Department of Mineral Resources and Energy on the Private Member’s Bill submitted by Ms N Mazzone (DA) last year.

The Bill sought to open up the electricity generation market, giving independent power producers the same market access as Eskom. It would create a private company, the Independent Electricity Management Operator, governed jointly by a board made up of ministerial appointments and experts from the private sector, which would act as a trader of electricity, provide input into the planning of electricity supply and transmission, and allow municipalities to purchase electricity directly from generators in certain circumstances.

The Department expressed concerns that the proposed Independent Electricity Management Operator was a private company that would take over various functions from the Minister of Mineral Resources and Energy, municipalities and the public sector more generally. It was particularly concerned that the State was explicitly excluded from being a shareholder. It recommended that the Bill be reconsidered.

Members sought clarity on the record of poor maintenance of the country’s power stations, the exact points in law where the Bill would allow the Independent Electricity Management Operator to take over public sector functions, and discussed the governance of the proposed entity.

Meeting report

The Chairperson said the purpose of the meeting was to hear the views of the Department of Mineral Resources and Energy (DMRE) on the Independent Electricity Management Operator (IMEO) Bill. He appealed to the Committee Members to restrict themselves to questions of clarity on the Department’s submission. The Committee would discuss the merits of the Bill the following week.

Presentation by DMRE

Mr Thabane Zulu, Director-General: DMRE, apologised for the absence of Minister of Mineral Resources and Energy, Mr Gwede Mantashe. He asked Mr Thabang Audat, Chief Director: Energy Planning, DMRE, to take the Committee through the Department’s presentation.

Mr Audat said he would focus on the technical contents of the Bill. He reminded the Committee about the Independent System and Market Operator (ISMO) Bill that had been submitted in 2012, but withdrawn in 2014. He commented that Schedule 4 of the Constitution gave municipalities the power to reticulate electricity and gas.

There was an urgent need to increase the country’s total electricity generation capacity. To do this, Eskom would need to raise capital and increase tariffs while, at the same time, minimising the government’s exposure to risk and limiting the negative effects of tariff increases on economic growth. The IEMO Bill sought to open up the electricity generation market, giving independent power producers (IPPs) the same market access as Eskom. It would create a private company, the IEMO, governed jointly by a board made up of ministerial appointments and experts from the private sector, which would act as a trader of electricity, provide input into the planning of electricity supply and transmission, and allow municipalities to purchase electricity directly from generators in certain circumstances. He pointed out some features of Eskom’s own roadmap, which included creating separate subsidiaries for generation, transmission and distribution.

The DMRE’s view was that the proposed functions of the IMEO overlapped with the mandate of the Minister of Mineral Resources and Energy as set out in the Electricity Regulation Act (ERA). The Department was concerned that the explicit exclusion of the State as a shareholder in the IMEO amounted to having a private company execute a public function, and take over the assets of the State. The Department was also concerned about provisions in the Bill for the IMEO to choose different tariffs, treat metropolitan municipalities differently, and take over reticulation from municipalities. The Department predicted that the IMEO board of directors, which would comprise five members appointed by the Minister and five technical experts, would come into conflict with the Minister.

Its recommendation was that the IMEO Bill conflicted with existing legislation and should be reconsidered. The energy crisis needed to be taken to Cabinet and analysed by various government departments. Lastly, the Electricity Regulation Act (ERA) should be amended in line with the Eskom roadmap.

Discussion

Mr M Nxumalo (IFP) asked why the maintenance of power stations had been so poor over the years.

Ms C Phillips (DA) asked who would be held responsible for the record of poor maintenance.

Mr Zulu replied that maintenance was the responsibility of the Department of Public Enterprises (DPE).

Mr Nxumalo wondered whether this had any implications for the ongoing relevance of the DPE. Did the Department have any thoughts?

Mr D Mthenjane (EFF) asked whether the Department thought it was possible for Eskom to be brought under the leadership of the DMRE, instead of the DPE.

The Chairperson reminded the Committee that the meeting was not discussing the Eskom crisis, only the IMEO Bill.

Mr Zulu replied that he was unable to comment on the structure of ministries. The important thing was to achieve the synergies required for Eskom to succeed.

Mr Nxumalo said that the explicit exclusion of the State as a shareholder in the IMEO seemed to imply that the Bill was a roadmap for the privatisation of Eskom.

Mr K Mileham (DA) recalled that then-President Jacob Zuma had called the ISMO Bill critical to the future of the country, and should be reintroduced. Why was it withdrawn, and why had it not been reintroduced?

Mr Zulu replied that the introduction and withdrawal of Bills was the prerogative of Parliament, not the DMRE.

Mr Mileham commented that the Eskom roadmap was just a discussion document at this point. It had not been approved. For example, Minister Mantashe was the only person who had even mentioned the proposal for having multiple power generation subsidiaries of Eskom, and the idea had been harshly criticised. There was no evidence that intra-company competition within Eskom would reduce prices. He asked which specific sections of the ERA created an overlap between the mandate of the Minister and the functions of the IMEO, and the specific sections where the IMEO Bill went against the ERA.

Mr Audat replied that Section 6 of the IMEO Bill overlapped with the Minister’s power to oversee planning.

Mr Mileham did not agree. The IMEO Bill merely directed the IMEO to provide planning input to the Minister.

Mr Audat insisted that the IMEO Bill was attempting to enable the IMEO to direct the Minister’s planning.

Mr Mileham said that the IMEO would be a private-public partnership, where the State shared control of the board with the private sector, who contributed expertise and financial resources. It was misleading to say that it would be a private company.

Mr Audat replied that ownership of a company resided with shareholders, not the board. Clause 3(1)(c) explicitly excluded the State from being a shareholder in IMEO.

Mr Mileham said that Eskom was already able to choose different tariffs for different customers. Why was it a problem for the IMEO to do the same? The only difference in the Bill between metropolitan and other municipalities was that the former would be allowed to purchase power directly from independent power producers (IPPs). Where in the Bill was the IMEO given the power to take over reticulation from a municipality?

Mr Audat replied that Schedule 4 of the Constitution did not distinguish between metro and non-metro municipalities in connection with electricity reticulation, whereas the IMEO Bill made no mention of non-metro municipalities. The IMEO Bill tried to introduce conditions on municipalities’ power to procure and reticulate electricity purchased from IPPs. Municipalities did not buy electricity for their own benefit, but for the benefit of end-users.

Mr Mileham asked for further clarity on the Department’s interpretation of what the Bill provided for metropolitan municipalities. He failed to understand the Department’s position that municipalities did not buy electricity for their own benefit, and how it related to the IMEO Bill.

The Chairperson reminded Mr Mileham that the purpose of the meeting was just to get the Department’s input, not to settle matters of fact. He asked Members not to interrupt a speaker, or speak without being recognised by the Chairperson.

Mr Mileham insisted that he was simply seeking to understand the Department’s interpretation of the Bill. For example, where in the ERA was the Minister made responsible for planning?

The Chairperson asked Mr Mileham to accept the Department’s submission. If there were factual problems, he should raise these concerns with the Committee the following week.

Mr Mileham was frustrated with the Chairperson’s ruling.

The Chairperson reminded Mr Mileham to be respectful.

Ms V Malinga (ANC) said that while the Department dragged its feet, the country’s energy supply was under threat. She was not in support of the IMEO Bill, but what was the Department’s plan?

Mr Zulu explained that the presentation was a response to the Bill. The DMRE was developing an action plan to give effect to the integrated resource plan (IRP).

Ms Malinga observed that the IRP provided for IPPs. Was the Committee not satisfied that the IRP would deliver? She was not convinced about the proposed board structure of the IMEO. How would the private sector members be chosen?

Mr Mthenjane was disappointed that the Minister seemed to be ignoring the Committee. He agreed with the Department’s rejection of the IMEO Bill. It was in fact being pushed indirectly by people such as the Minister of Public Enterprises, Mr Pravin Gordhan.

Mr Mileham objected that Mr Mthenjane was not abiding by the Chairperson’s appeal to restrict themselves to requests for clarity from the Department.

The Chairperson agreed that arguments for and against the Bill would be discussed the following week. He thanked the Department, and asked them to take note of the Committee’s comments regarding the Minister’s attendance.

The meeting was adjourned.

 

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