Eskom Conversion Bill: public hearings

PUBLIC ENTERPRISE PORTFOLIO COMMITTEE
8 May 2001
ESKOM CONVERSION BILL: PUBLIC HEARING

Chairperson: Mr S Belot

Documents handed out:
Chamber of Mines submission (see Appendix)

SUMMARY
Mr Kruger said the mines were major customers of Eskom. Likewise Eskom was a major customer when it comes to coal consumption. Of the total sales of Eskom's electricity, the mines consumed 17.2%. Of the total South African coal sales, Eskom consumed 42%.

The Chamber of Mines supports the conversion of Eskom into a public company but pleads for assurance that Eskom will not neglect its consumers. One way of doing this is to involve stakeholders in the governance of the utility. The Bill should legislate that the Board of Directors should include, in addition to persons with skills and experience for the effective governance of the enterprise, persons nominated by major stakeholders.

MINUTES
The Chairperson explained that the Committee had advertised for public opinion on the Bill. Advertisements had been put out inviting stakeholders to make submissions before the committee - the closing date being 26 April. However none had responded. The Committee had then decided to communicate directly with stakeholders for input. Both the Chamber of Mines and Cosatu (who would make its submissions the following day) had responded.

Chamber of Mines
Mr D Kruger of the Chamber of Mines explained why it was important for the Chamber of Mines to be included on the Board of Directors of the envisaged Eskom Limited.

He said the mines were major customers of Eskom and so was Eskom when it comes to coal consumption. He gave figures of how important that relationship was. For instance of the total sales of Eskom's electricity, the mines consumed 17.2%. Likewise, of the total South African coal sales, Eskom consumed 42%, and the figures involved in these transactions are to the tune of R4 053 million. He said these statistics confirm the position of the mines as a major stakeholder in Eskom.

Mr Kruger said the Chamber of Mines supports the conversion of Eskom into a public company and this move is viewed "as a prerequisite for the introduction of competition into this industry."

Mr Kruger commented that this conversion would change nothing because Eskom will continue to dominate the market. Further its role in the restructuring of the electricity distribution industry remains unclear.

He pleaded for assurance that Eskom will not neglect its consumers. The way of doing that is to involve stakeholders in the governance of the utility. He referred the committee to the White Paper on Energy Policy, which recognizes the need for the utility to include stakeholders in the governance of that entity.

He recommended that in the governance of the enterprise, persons nominated by the major stakeholders be included and that the composition of the Board be determined by legislation not only for transparency but also for maintaining stakeholder involvement in the governance of Eskom Limited.

He mentioned the clause in the Bill to be inserted to achieve that - Clause 5 to Clause 6 (1) and 6 (2). He preferred a Bill rather than a regulation in outlining the composition of the Board, arguing that regulations allow speedy amendments.

Discussion
Mr J Kgauwe (ANC) asked for clarification on the proposal that stakeholders in the governance of the utility be involved, was that argument based on the fact that there will be no transparency without them? Secondly, he asked whether it was a fact that mines consume more electricity than communities.

Mr Kruger said it is the Chamber's view that stakeholder representatives are subject to all the norms applied to directing companies in order to look after the interests of the company and satisfy customers. He said it is the Chamber's belief that stakeholder representatives bring something extra to the table that enhances the capacity of the Board to better respond to customer needs.

On the community-mines equation, because of progress in the electrification programme households will consume more than the mining industry in the near future. It was his opinion that they should also be represented on the Board.

Mr R Mohlala (ANC) referred Mr Kruger to Section 6 (1) and (2) and asked whether Mr Kruger did not think that these sub-clauses suffice and already cover his concerns?

Mr Kruger responded that the Chamber welcomes the sub-clauses in Section 6. He said the Chamber of Mines comments are based on the earlier draft version of the Bill, which provides for regulation without reference to any consultation.

Mr R Mohlala (ANC) asked why do they want to see it in writing and what was the Chamber trying to protect?

Mr Kruger responded bluntly they were protecting a multi-billion rand business and said the mines had a two-way business with Eskom that called for closer relations. He said the Chamber was protecting that business to preserve that relationship. On why they want it in writing he said if it were stated in writing it would be much easier assurance that "it will go the direction intended to go because beliefs are shared."

Mr RG Heine (DP) wanted clarification as to whether Billington, which had negotiated certain tariffs with Eskom when starting operations at Richards Bay, should be part of this stakeholder issue or are they part of the Chamber of Mines?

Mr Kruger replied that Billington was a member of the Chamber of Mines and added that the Chamber of Mines interacts with Eskom at a policy level. He said that when he talks about stakeholder bodies he talks about bodies such as the Chamber of Mines, which represents mining stakeholders, or Sacob, which represents business community. He said that it would not be healthy for customers on their own to be represented on the Board. That was one of the principles on governance on this basis, he said.

The meeting was adjourned.

Appendix:
CHAMBER OF MINES OF SOUTH AFRICA

PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES ON THE ESKOM CONVERSION BILL, 2000

8 MAY 2001

D A KRUGER (ASSISTANT ADVISER: TECHNO-ECONOMICS)


EXECUTIVE SUMMARY
The Chamber of Mines of South Africa supports the proposed conversion of Eskom into a public company. It is, however, of the view that as long as the State is the sole, or major shareholder, in Eskom and there is no significant competition in the electricity generation sector, stakeholders should be involved in its management. It is therefore proposed that the Board of Directors of the envisaged Eskom Limited include stakeholder representatives.

INTRODUCTION
The mining industry is not only a major consumer of the electricity generated by Eskom, but is also the major supplier of fuel to Eskom as is illustrated by the following statistics for the year 2000:

In the mining industry electricity is not merely a convenient energy source, it has major applications that are crucial to the health and safety of mine workers, for example ventilation, refrigeration and pumping

These statistics confirm the position of the mining industry as a major stakeholder in Eskom.

THE CONVERSION OF ESKOM
The Chamber of Mines has previously expressed support for the restructuring of Eskom as it was regarded as a necessary precursor to the full commercialisation and eventual privatisation of the electricity supply industry, especially the generation business. It was also viewed as a prerequisite for the introduction of competition into this industry.

It therefore follows that the Chamber now supports the proposed conversion of Eskom into a public company.

The proposed conversion of Eskom will, however, on its own change very little in the South African electricity supply industry. Eskom will, in the medium term, continue to dominate in electricity generation. It will also remain in control of the transmission system for the foreseeable future.

Its precise role in the restructuring of the electricity distribution industry is not yet clear, but it will no doubt play an important part in that process.

A large portion of South Africa's industry has been established on the basis of low cost reliable, electricity supply. In view of the current developments, that could almost be described as a revolution, in the electricity supply industry, it is necessary to provide some assurance to consumers that their needs will not be neglected. One way of achieving this is by involving stakeholders in the governance of the electricity supply industry. The White Paper on Energy Policy ¹ also recognise this need in proclaiming that:

The shift in Government's energy policy objectives pose new challenges for the governance of the electricity industry. These include the need to :
. . . . . . . . . . . . . . . . . . . . . . . .
broaden the involvement of stakeholders in utility governance processes;
. . . . . . . . . . . . . . . . . . . . . . . . .
¹ White Paper on Energy Policy for Republic of South Africa December 1998 Clause 7.1.7 Energy sector governance.

RECOMMENDATION
In view of the above the Chamber of Mines recommends that the Board of Directors of the envisaged Eskom Limited include, in addition to persons whose skills and experience are needed for the effective governance of the enterprise, persons nominated by major stakeholders.

For the sake of transparency and to maintain stakeholder involvement in the governance of Eskom Limited the composition of the Board should be determined by legislation. This could be achieved by the insertion of the following clause in the Bill:

4 (9) Notwithstanding the provisions of section 5, for so long as the State is the sole
or majority shareholder in Eskom, the composition of the Board of Directors
of Eskom Limited shall be determined by regulation as envisaged in section 6
(1).

The consultations envisaged by clause 6 (2) will ensure that the composition of the Board is arrived at in a transparent and inclusive manner.

Defining the composition of the Board in the envisaged regulations rather than in the Bill will allow amendments to be made relatively simply and quickly when necessary.

CONCLUSION
The Chamber of Mines thanks the Parliamentary Portfolio Committee on Public Enterprises for affording it the opportunity to express its views on the Eskom Conversion Bill.