EDI Holdings, National Electricity Regulator and Central Energy Fund: briefings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
20 October 2004
EDI HOLDINGS, NATIONAL ELECTRICITY REGULATOR AND CENTRAL ENERGY FUND: BRIEFINGS

Acting Chairperson: Professor J Mohammed (ANC)

Documents handed out
Electricity Distribution Industry (EDI) Holdings PowerPoint presentation
Central Energy Fund (CEF) PowerPoint presentation
National Energy Regulator (NER) PowerPoint presentation

SUMMARY
Members were briefed by Electricity Distribution Industry (EDI) Holdings, the Central Energy Fund (CEF) and the National Energy Regulator (NER) on their Annual Reports, Business Plans and Financial Statements. Members then asked about the need to build more power stations, whether municipalities would be financially viable without electricity distribution revenue, whether government would assume existing municipal debt after the introduction of regional electricity distributors, whether the poor quality of electricity supply would be improved, and whether restructuring of the electricity industry would result in job creation and skills retentioni.

MINUTES

National Energy Regulator briefing
The National Electricity Regulator (NER) presentation was mainly around its Annual Report and Eskom's price reviews. The Regulator aimed to become a world class leader in energy regulation, and to regulate the energy industry according to the law and policies of the government in support of sustainable development.

There was a regulatory framework for the newly required capacity. Skills and competencies played a role in the socio-economic development activities of the government.

The NER's achievements included amending the Eskom transmission license. Eskom's price adjustment applications were mainly in the generation, transmission and distribution divisions.

The NER had employed the Rate of Return methodology, which calculated the required revenue of an entity and awarded a return on the investments it made to generate electricity. After the Board of Directors had considered the submissions, the Chairperson would make an announcement.

Central Energy Fund briefing
The Fund was established in terms of the CEF Act of 1977 to manage defined energy interests for the Government and act as a catalyst for the development of new energy entities.

The group focussed on renewable and alternative energy. One of its commercial projects was PetroSA, a petroleum corporation whose major challenges included the exchange control regulations that were not conducive for investment in upstream activities.

As a way forward, it would negotiate and finalise up-take agreements with the industry. It would also evaluate internal processes and procedures to ensure appropriateness and efficient support to its core business. PetroSA's net sales revenue was R2 866m by September 2004.

A special project of CEF was Oil Pollution Control South Africa (OPCSA) registered as a section 21 company in 1992 to provide pollution prevention, control and clean-up services within the Saldanha Bay harbour facilities. Its vision was to be the partner of choice in the provision of oil pollution prevention and control services in South Africa, Africa and the Middle East.

Its major challenge was the need for skills building and retention. As a way forward, it would identify new projects and investments. There would also be systems put in place to facilitate the best choice of projects for the group.

EDI Holdings briefing
The industry was faced by the challenge of unequal treatment of consumers across the country and the inability to supply electricity to the indigent. In 1999, Cabinet approved the start of a restructuring process. The industry's vision for restructuring had been to consolidate the South African Electricity Distribution Industry into six financially viable Regional Electricity Distributors (REDs).

To retain effective control of REDs, EDI Holdings were established in 2003. EDI managed the provision of short-term support by electricity providers. It also prepared and implemented an electricity distribution industry-wide social plan and other plans.

Some municipalities had taken steps to prepare for the restructuring process. There had also been strategic frameworks that had been developed.

It planned legally registering the REDs and finalising an organisational structure by March 2005. The impact of taxation would also be analysed by November this year.

The key challenges to the process would be the financial viability of municipalities without electricity departments. Municipalities had a constitutional obligation to ensure the provision of services listed in Schedule 4B and 5B of the Constitution.

Discussion
The Chairperson asked why electricity prices had already increased in Johannesburg and other municipalities if the announcement would only be made the following day. He also asked what would happen if Eskom did not accept the Regulator's prices, and if there was a need for building new power stations.

The NER's Executive Manager of corporate affairs, Mr N Singh, replied that there was a need for new power stations. He added that the supply price would be added by determinations. They had to move as quickly as possible to address some of the problems. There had been some interaction between the NER and municipalities regarding maintenance, planning and refurbishment expenditure.

Mr C Kekana (ANC) asked why regulators allowed poor quality supply of electricity in rural areas. He also enquired about the legal position of the regulators. He also commented that the electricity price was not low if poor people could not afford it.

Mr Mokoena responded that the cost of producing electricity currently did not reflect the long-term marginal cost of production. South Africa had relatively very cheap electricity and it was important that the quality of supply is improved. The interest of supplier and consumer were applied. There was legal recourse but the NER also intervened where there had been differences between the consumer and supplier.

Mr E Ngcobo (ANC) said there had been no steady rise in employment and expenditure should focus on these issues. The energy sector should focus more on human resources development. He asked what strategic plans the regulator had for next year.

The NER's Executive Manager in the Value Enhancement division, Ms Nomonde Mapetla, responded that study loans had been given to two employees for skills development training. They had regulating programmes to train people to become regulators. Human Resources development got particular attention at the NER. They were trying to keep staff focussed over the five years to retain them.

Mr E Lucas (IFP) asked what the advantages were for investing in other countries.

Mr Mokoena's response was that there had been over investment during the 1970s and 1980s and people had benefited in terms of job creation.

Mr C Morkel (DA) asked if there had been any constitutional changes required for setting up REDs. He also asked if the EDI would absorb the debt accumulated by municipalities and why the EDI did not deal with taxation.

Ms Nzimande replied that they had not met any resistance but have received great co-operation from municipalities. They were looking at issues of revenue. Loans would be given to municipalities and some of the debt would be transferred to the national government.

Mr H Schmidt (DA) asked how the REDs would ensure that skills were not lost in some municipalities. He also asked if their timelines were realistic.

Ms Nzimande responded that some parts of the municipalities would be taken into REDs and they would make sure it was viable. They would operate in different laps and tasks would be finalised in five years. They would have 50 full time staff and everyone would be given a 5-year contract.

Ms N Mathibela (ANC) commented that electricity did not come cheap. She asked if there had been any monitoring mechanism on the contractors.

Ms Nzimande said they were looking at exploiting other sources of energy. Free basic energy had been targeted at everyone. Municipalities were monitoring contractors. They were looking at having a transparent meter reading system.

Mr C Morkel (DA) asked if the present legislation had been efficient and if international partnerships were necessary.

Mr Mjekula responded that there had been a need for international partnerships and that the present legislation had been more favourable towards subsidiaries.

Mr A Harding (ID) suggested that Members needed to have CEF back for another meeting.

The meeting was adjourned.