Committee Business Plan and Budget: adoption; Eskom briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
25 August 2004
COMMITTEE BUSINESS PLAN AND BUDGET: ADOPTION; ESKOM BRIEFING

Chairperson: Mr B Martins (ANC)

Documents handed out:
Committee Business Plan and Budget
Eskom Slide Show
Eskom Development Foundation Annual Report 2003 (offsite link)
Eskom Annual Report 2003 (offsite link)

SUMMARY
The Committee was briefed about Eskom’s performance during recent years and the challenges they would face in the future. Eskom’s main goals were to avoid a mismatch between demand and supply, and to make the right decision to deliver in terms of capacity.

A discussion followed where Members questioned Eskom’s service delivery. Alternative sources of electricity and the eight year plan for 100% access to electricity for all South Africans was discussed. Eskom and the Chairperson expressed the need to work together to fulfil the needs of people and to deliver on their promise of free basic electricity. Eskom would continue to strive for excellent service delivery.

MINUTES
The Chairperson asked Members if they could informally adopt the Committee Business Plan and Budget. He said the proposed amendments had been done. The Committee’s priority was with the cost of catering and workshops to empower Members. There would be no meeting the following week.

Mr Thulani S Gcabashe (Chief Executive, Eskom) introduced his colleagues from Eskom. The aim had been to give a snapshot of Eskom. Their strategic intent was to be the pre-eminent African energy and related services business of global stature. He focussed on Eskom’s group strategy, lines of business, a ten-year review of performance and the issue of electricity shortages by 2007 as stated in the media. South Africa was approaching the end of its surplus. Eskom’s challenges were to avoid a mismatch between demand and supply, and to make the right decision to deliver in terms of capacity. Eskom had been considering future alternative electricity supply options to combat shortages. South Africa enjoys globally competitive prices. Potential imported power could come from Mepanda Uncua and Cahora Bassa North in Mozambique, Inga 3 and Grand Inga in the Democratic Republic of the Congo (DRC), and Batoke Gorge, Kafue Lower and Kariba North in Zambia. Gas partnership would include Kudu in Namibia and Pande in Mozambique. Eskom would continue to commit to providing sustainable electricity and impeccable customer services.

Discussion
Mr H Bekker (IFP) agreed with the Chairperson on the excellent service delivery by Eskom. The topography of places such as KwaZulu-Natal, had made it impossible to deliver electricity effectively. He said solar power energy was missing. Remote villages should be assisted by windmills. Eskom should look outside the grid of electricity supply as the supply of electricity to previously disadvantaged people was essential.

Mr C Rhululu (ANC) asked what would be the future energy supply sources and whether uranium was an option.

Mr Mannie emphasised the need to ensure access to electricity. The poor should not subsidise businesses. He said Eskom’s dividends had been ten percent before tax. He asked if this had been used to fund expansion programmes.

Ms PN Mnandi (ANC) said the presentation had been very technical and the Committee was interested in something simple. She asked how far Eskom had gone to electrify South Africa. Eskom had placed special focus on Black Economic Empowerment (BEE) and women. She asked who were benefiting from BEE. Eskom should monitor how people had been benefiting. She said the Committee was interested in job creation and how many had been created. How many jobs will be created?

Mr T Louw asked what the future of nuclear power was and whether Eskom had considered it to be an option.

Mr I Davidson (DA) asked what the relative cost per kilowatt was. Each different source of power was at a different cost. He said that coal was much cheaper. He asked whether Mr Gcabasha could provide the Committee with figures. He also asked how Eskom had been integrated with the Independent Power Producers (IPPs) and what market there was for IPPs. How does Eskom lower the base-line? Why was the power wholesale price 3.71 US cents, while Eskom had been selling it for 16.08 South African cents?

The Chairperson said the Committee was interested in Eskom’s service delivery. The Committee should understand what Eskom does in order to contribute. The Committee needs to understand the challenges of Eskom. He suggested a look at the main themes of the Members’ questions. He asked if Eskom would be able to pay for their suggested plan. What does Eskom’s figures mean? Does it mean that 74% of people had been enjoying the use of electricity or does it mean that 74% had the potential to enjoy it?

Mr Gcabashe agreed with the Chairperson that the issue was what the figures all meant. Eskom had been focussing on meeting the national plan, which had been structured by various governmental structures. The displacement of communities had been a problem in previous years, but this was not the case anymore. Affordability was a problem as households did not have steady incomes. Electricity had been mainly used for lights and entertainment, such as television. Consumption numbers had not yet been achieved, but the use of power for lights had changed the lives of many people.

The Chairperson asked what the progress on the free service delivery was? He said only some residents had been receiving free service delivery. Eskom had been receiving funds from the National Revenue Fund. During a visit to the Municipalities last January, it had sounded as if there had been free service delivery where the Municipalities had been delivering, but this had not been the case where Eskom had been delivering. The Committee had been told by the National Treasury and the Minister that the problem would have been solved by 1 July as the National Revenue Fund would give Eskom the funds directly.

Mr Gcabashe said a half million people had been registered for free basic electricity. 1 October had been the first delivery of the free basic electricity. It was a difficult process to deal with the Municipalities to provide this service. A half million people was not enough.

The Chairperson asked if other developing countries had a 100% service delivery? Was their target the same as other countries?

Mr Gcabashe said by observation, many developing countries had 100% access to electricity. 100% Access did not make a country developed and was difficult to achieve. Alternative ways to supply electricity to people should be explored.

The Chairperson asked how Eskom would deal with the challenges and were there any other sources of energy in remote rural areas.

Mr Gcabashe said Eskom had to find stand-alone options for electricity supply. Imported hydro and diesel were options, but diesel had been too expensive. Eskom would be piloting the idea of large-scale solar power as it allows for large quantities of electricity to be supplied. Costs had not been the only constraints, but also the topography of the country. Eskom and the Department of Minerals and Energy (DME) had put together an eight year plan to achieve 100% access to electricity.

He also asked how many people Eskom had employed in 1994 and how many they currently employed.

Mr Gcabashe said Eskom tackled its efficiency levels in the late eighties. Eskom had employed 64 000 people in the eighties, 39 000 in 1994 and currently employed 32 000. They had tried not to replace posts that were not needed. Eskom had offered their employees voluntary service packages. Mr Gcabashe would communicate with Members about the amount of full time and part-time jobs that Eskom would create.

Mr Chris Rhululu (ANC) asked if Eskom employed South Africans in top managerial positions when they opened their doors to business in Africa.

Mr Gcabashe said Eskom had been trying not to employ South Africans and did not want to take over. In Uganda there was twelve South Africans in key posts and the rest were locals.

The Chairperson asked if the Government’s eight year plan to reach 100% access to electricity was impossible or only difficult as other sources had to be found.

Mr Gcabashe said it was possible, but Eskom should become creative and find other ways of bringing electricity to the people.

The Chairperson asked what percentage of the 74% who had potential access to electricity, were using it daily. He said pre-paid meters had been unreliable.

Mr Notsokolo (Eskom Distribution) said that Eskom had been monitoring consumption on a monthly basis. Eskom currently had 80% active consumers.

The Chairperson asked how South Africa measured up to other developing countries.

Mr Gcabashe said he did not have precise figures, but the Asian Tigers, Egypt and Algeria had 100% access to electricity.

Mr Mannie said he understood Eskom had to operate within certain financial parameters. As politicians, they should report back to back to the people on free basic electricity. He asked whether Eskom had promised something impossible. He said the Members had to press the issue of free basic electricity with the Department of Minerals and Energy (DME) and Eskom to reach their target.

Mr Gcabashe said DME was working on a plan with Eskom and the Municipalities, which would provide 100% access. After the plan had been approved, everybody would be able to see when they would receive electricity.

The Chairperson said Eskom and the Committee should meet with the Portfolio Committee on Minerals and Energy.

Mr Kholwane said Eskom customers had been having difficulty to reach central call centres and phone calls were expensive. Servicing stations were far from the customers to whom they supply electricity. People had been paying for Eskom’s errors. He asked how Eskom would deal with these problems.

Mr Gcabashe said Eskom strives to provide a high level of service, but they needed the details regarding certain problems to address the issues.

Mr Notsokolo said details would help to solve problems. Eskom’s approach to service delivery was to use call centres more than walk-in centres as it was cheaper. Education also played a part as customers could often be directed on how to reset their meters. Eskom would introduce ‘Red Phones’ in shopping centres and service stations. The phones would be directly connected to Eskom’s call centres and would be free of charge. Eskom had been trying to help communities by allowing them to benefit from the sales of electricity. Eskom had been having difficulty to respond to after hour calls, especially in places such as Soweto. The call centre operators would first ask the callers a couple of questions to establish the source of the problem. Eskom would send their technicians out for bigger problems.

The Chairperson said the Committee’s next meeting would deal with Eskom’s tariff structures.

Mr Bekker (IFP) said Eskom should consider the realities of South Africa and try to get as close as possible to 100% access to electricity. He requested alternative options from Eskom and the Minerals Portfolio Committee. He suggested free gas cylinders should be provided to those people without access to electricity, as a token of goodwill. Eskom should look at alternative forms of electricity through municipal or provincial structures.

The Chairperson asked what Eskom was considering as alternative sources of electricity.

Mr Gcabashe said the pebble modular reactor was a good option as it was the cheapest and most technologically flexible. The DME had said that nuclear power was also an option. Uranium was problematic as it should be processed before use and this was not done in South Africa.

The Chairperson asked about Eskom’s tariff structures and financial performance.

Mr Gcabashe said South Africa ranked fourth with regard to domestic prices. Eskom was hoping for fewer tariff structures.

Mr Notsokolo said there was a component for energy and infrastructure. In theory, Eskom’s prices had not been the cheapest. Eskom had spent a lot to establish infrastructure in rural areas. Tariffs should lower over the next couple of years, but Eskom should monitor it.

Mr Mannie said the infrastructure had been lacking where it was needed most. People who had suffered the most, had to pay. The Government should take the responsibility of picking up the cost of infrastructure. Those who suffer most should only pay for electricity.

Mr Notsokolo said DME was funding most of the infrastructure costs, but Eskom had requested the Government to help ease the load. Over time, the cost of electricity should come down.

The Chairperson said the Committee had to discuss the matter with the Minerals Portfolio Committee. The cost per unit of electricity would increase.

Mr Kholwane asked if Eskom was going to deal with overtaxing.

Ms ND Ngcengwane (ANC) asked how many disabled female employees Eskom employed.

Mr Gcabashe said Eskom measured disability separately and did not have the precise figures. Eskom’s current target was 1.8%. The question had been to define what a disability was. Eskom was open to anybody and they offered flexibility.

Ms ND Ngcengwane asked how big Eskom’s risk was to extend its business into war-driven countries.

Mr Gcabashe said Eskom had always studied the political risk. Eskom worked closely with the Government, the Department of Foreign Affairs and the other countries’ Governments to keep the risk to a minimum. Eskom had made more progress in Uganda than the Democratic Republic of the Congo (DRC)

The Chairperson said all questions in the meeting would be noted.

Mr Gcabashe said DME would provide Independent Power Producers (IPPs).

The Chairperson asked if Eskom would be involved in the new power generation.

Mr Gcabashe said Eskom still had the duty to supply electricity.

The Chairperson said the Committee should work together with Eskom and DME. The Committee wanted to extract information from Eskom to do their jobs as politicians.

Mr Notsokolo said the problem of free basic electricity was funding the Municipalities. Eskom did now want to depend on the grant from the Municipalities.

Mr Gcabashe thanked the Committee for the opportunity to brief them on Eskom’s future. He said Eskom could not allow a lack of clarity in policy to hamper development and service delivery. Decisions should be taken together.

The Chairperson said the Committee should work with the Minerals Portfolio Committee to fill the gaps.

Committee Business Plan and Budget
The Chairperson then asked whether the Committee Business Plan and Budget could be formally adopted. The Committee agreed to adopt it.

The meeting was adjourned.