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MINERALS AND ENERGY PORTFOLIO COMMITTEE
31 October 2005
DIAMONDS AMENDMENT BILL (B27- 2005) (REINTRODUCED): ADOPTION
ELECTRICITY REGULATION BILL: HEARINGS
Chairperson: Mr. E. Mthethwa (ANC)
South African Local Government Association
Association of Municipal Electricity Undertakings
Energy Intensive Users Group
City of Cape Town [please email firstname.lastname@example.org]
Chamber of Mines
Chamber of Mines PowerPoint presentation
The Committee adopted the reintroduced Section 75 Diamonds Amendment Bill with the DA objecting.
It then conducted public hearings on the Electricity Regulation Bill. The Bill came in for some sharp criticism from interested parties.
Diamonds Amendment Bill adoption
The reintroduced Diamonds Amendment Bill (B27-2005) was adopted by the Committee as a Section 75 Bill. The aim of the Bill was to drive the beneficiation of diamond resources in South Africa and to provide for the local supply of rough diamonds to the local diamond cutting and polishing industry.
The objects of the Bill were to establish the South African Diamonds and Precious Metals Regulator, to provide that the Board of Directors of the Regulator will be represented by Government, to stipulate that the regulator would be funded by money appropriated by Parliament, to provide for the establishment of diamond exchange and export centres, to provide for any local beneficiator to purchase unpolished diamonds, to establish a State Diamond Trader for the purposes of promoting equitable access to and local beneficiation of South Africa's rough diamond resources, to provide for the Trader to have its own Board of Directors, to license local trading houses and to facilitate the buying and selling of unpolished diamonds locally on their premises and to provide for the conversion of licenses and permits presently held in terms of the transitional provisions within one year from the promulgation of the Bill.
Mr. E Mthethwa requested the Committee to formally adopt the Bill. Adv. Schmidt (DA) responded that the Democratic Alliance was opposing the Bill. The Bill was adopted.
Electricity Regulation Bill Hearings
The Electricity Regulation Bill (B29 - 2005) was reintroduced in the National Assembly as a Section 75 Bill to establish a national regulatory framework for the electricity supply industry, to make the National Energy Regulator the custodian and enforcer of the national electricity regulatory framework, to provide for licenses and registration as the manner in which generation, transmission, distribution, trading and the import and export of electricity are regulated, and to provide for matters connected therewith.
The Bill was originally introduced as a Section 75 and 76 mixed Bill and the Chairperson requested the stakeholders making submissions to restrict themselves to dealing with the Section 75 Bill, as an opportunity for further submissions on the Section 76 part would be available in the future.
SA Local Government Association (SALGA) submission
Ms. Z Hlatshawayo welcomed the Bill but expressed SALGA’s concern about its viability in light of the uncertainties regarding the Electricity Distribution Industry Restructuring (EDIR) process and the long awaited EDIR Bill. She stated that the process of implementing EDI restructuring and overhauling electricity legislation needed to be aligned to ensure a smooth transition.
She raised concerns that the Bill was premature, and strongly recommended that further processing should be stopped until the EDIR Bill was introduced and agreement was reached on the number of Regional Electricity Distributors (REDS) to be created. She continued that the timing and the sequence of events leading to the Bill should allow EDIR to come first.
Mr. C Morkel (Independent) stated that he had difficulty accepting the idea that local government elections would have a negative impact on the process and that local government had been in a process of constant transformation for the last eleven years. He wanted to know from SALGA at what point one stopped saying that something could not be done effectively because of the constant transformation taking place at local government level.
Adv. H Schmidt (DA) also wanted to know from SALGA why they should wait and secondly he wanted clarity on whether SALGA wanted the further processing of the Bill to be discontinued until the EDIR Bill was introduced into Parliament.
Professor I Mohammed (ANC) sympathised about the municipal elections but said that the process must continue irrespective of this. He asked for more clarity regarding the term "the consumer, who negatively impacts on the quality of supply, to take corrective action" and wanted to know what was the negative and what were the actions they wanted to take.
Ms Hlatshwayo responded that they welcomed the Bill and wanted Section 76 to be included, but SALGA had difficulties in giving inputs in the middle of a campaign. She would have preferred to give input on both Section 75 and 76, and SALGA needed a few months until local government elections were over.
Mrs Hlatshwayo stated that there was a lot of confusion at the moment and until they got the full picture of all the Bill’s effects on municipalities they would not be able to say what there real concerns were.
Mr. R. Baloyi from SALGA responded to the question on the grounds for taking actions against customers affecting the quality of supply by saying some suppliers did modifications at the supply point which negatively affected customers and therefore recourse was needed to address this issue by penalising these customers.
He stated on the alternatives that SALGA offered that they were working closely with the Department of Minerals and Energy and EDI holdings with a view to resolving some of the issues they had identified.
He emphasised that they were full-time officials at SALGA’s national offices and before they could communicate SALGA's position they needed to communicate organised local government's response to their political heads before it became public knowledge.
Association of Municipal Electricity Undertakings (AMEU) submission
Mr. S. Maphumulo stated that the Bill had added to a significant amount of confusion in the electricity regulatory environment and the proposed Bill had the following drawbacks: it negated many years of work to enable the EDI to be restructured into Regional Electricity Distributors by firmly entrenching the constitutional rights of municipalities, and it effectively removed the necessity for municipalities to be licensed by the NERSA.
He continued that AMEU did not believe that it was Government's intention to reduce the effectiveness of NERSA in regulating the electricity supply industry and distribution network, and therefore requested that the Bill in its current form be rejected and reworked.
Mr E Mthethwa stated that the AMEU submission dealt mainly with Section 76 and that the Committee had to stick to the specifics of Section 75 for the purposes of these hearings, because Section 76 would be handled at a later hearing.
Energy Intensive Users Group (EIUG) submission
Mr A. Hepburn said the EIUG was a voluntary association of large industrial energy end users. They comprised 24 industries in the mining, minerals and beneficiation, chemical industries and paper and steel production consuming 40% of total electricity sales.
He stated that the EIUG were in favour of the EDI blueprint end state model and legitimate regulation was necessary to ensure safe and consistent electricity infrastructure growth during the transition period.
Mr. Hepburn stated that it was imperative that the choice of supplier was entrenched in the Electricity Regulation Bill and he wanted clarification on this issue as well as the licensing requirements for resellers of electricity. He said that EIUG believed that regulation must be in place before it was possible to commit to structure and considered that both the Electricity Regulation Bill and the EDI Restructuring Bill were complimentary.
Mr. Morkel (Independent) asked for Mr Hepburn’s opinion on the need for a further regulatory impact assessment of the legislation as well as cost benefit analysis implications for their commercial interests. He also asked what social responsibility role would large business play with regard to poor rural communities who lacked electrification.
Mr. Hepburn responded that large industry were perfectly happy to meet their social obligations and they believed that NERSA had a responsibility to ensure that where customers needed to be serviced, this would be done by the appropriate authority who were the distributor.
Chamber of Mines submission
Mr D. Kruger said the Chamber of Mines had 1200 customers who consumed about 17.6 % of electricity sold in South Africa. He welcomed the Bill but was concerned about deviations from the white paper's original electricity restructuring blueprint.
He stated that the Chamber of Mines was concerned about the uncertainty created by the deviations that created an uncertain economic environment that was not conducive to investment and this could result in economic development being retarded.
He recommended that the following definition for the term "contestable customer" be included in the Bill, viz. "industrial customers who consumed more than 100 gigawatt hours per annum at a site or contiguous sites".
Ms. N. Mathibela (ANC) stated that it was disappointing that she had observed that mines had water and electricity, but that the surrounding communities and villages had no electricity.
Mr C. Morkel (Independent) asked if the Bill would allow for any offsets of costs for those mines that provided electricity services to surrounding communities.
Mr. C. Molefe (ANC) expressed his pleasure that there were no mention of any job losses in this Bill and he reminded Mr. Kruger that the hostels he had referred to in his presentation were being transformed into family units.
Mr. E Mthethwa asked whether there was any conflict of interest for the Regulator in issuing licenses as well as having to try to mediate in disputes.
Mr. Kruger replied that the functions of the mediator were clearly expressed in the legislation, but in the case of license conditions these were not clear to the public and needed to be spelt out clearly in the legislation.
He stated that the hostels were regrettable, but they had an obligation to look after those people until the hostels had been transformed into family units.
Mr. Kruger stated that with regard to the supply of electricity to communities; historically some communities had benefited from the mines supplying them power but it had become problematic for the mines to supply other people because with licensing and the tariff implications, mines had to enter into service delivery agreements.
He continued that if some provision was made in the legislative framework for offsets, then agreements could be made depending on the available offsets and the particular circumstances.
City of Cape Town submission
Dr. L. Rencontre stated that the city had established RED 1 as a municipal entity and entered into a service delivery agreement on 1 July 2005. He stated that currently the City of Cape Town was generating some R 233 million, which was roughly 10% of sales, as a surplus plus an additional R 123 million of surcharges for services provided by the city in the electricity function.
Dr. Rencontre said that the Bill was an important component of the indigent policy of the city and they believed that it was necessary to have some influence on the tariff process. They believed that the Bill should make provision for a three-year tariff plan so that the municipality was aware of the impact on its customers.
Dr.Rencontre continued that the Bill needed to make allowance for electrification programs funded through revenue and also set out what the parameters were, and that the National Energy Regulator should establish and oversee a regulatory program that dealt with green energy that would be part of the regulation of the service distributor.
RED One submission
Mr. Saleem Mowzer, CEO, stated that RED 1 was the first regional distributor in South Africa and was the electricity service provider to the Cape Metropole. He said that the Bill deviated from the Electricity Distribution Industry Restructuring Blueprint adopted by Cabinet in 2001 and it created substantial confusion.
He said the Bill should reflect the Electricity Supply Industry structure in 3 entities - Generation, Transmission and Distribution and the Bill did not deal with Service Delivery Agreements but should allow the Minister to regulate them.
Mr. Mowzer felt that the Bill should facilitate trading in renewable energy and the objects of the Bill should include the White Paper on Renewable Energy as well as obligating the NER to establish and oversee a national renewable energy certification system.
He recommended that the Bill be redrafted to give clear effect to the EDIR blueprint report. It should delineate the role of the NER in regulating service providers and it should delineate the role of municipalities as Service Authorities.
Mr Schmidt (DA) asked for explanation of Mr. Mowzer’s comment that the other Bills relating to EDIR should be run simultaneously with this Bill.
Mr Molefe (ANC) wanted to know what the situation was with regards to the EDIR process in the Western Cape and if they had the necessary capacity in place.
Mr Mowzer responded that he supported SALGA’s position that it would have been ideal to run the both the Electricity Regulation Bill and the EDIR restructuring process at the same time. Mr Mowzer stated that in terms of municipalities not wanting to join the REDS, in the absence of a proper regulatory environment, municipalities had the option of deciding whether they wished to join or not, but Cabinet had subsequently decided that 6 Metropolitan REDS would be established and one National RED might established which was subject to a modelling process.
He stated that Municipalities must join the REDS in order to give effect to Cabinet’s decision to restructure the industry and Municipalities could not remain outside the process.
He said that in terms of RED 1; their task was to complete the process in Metropolitan Cape Town which covered the City of Cape Town and Eskom in the metropolitan area of Cape Town. Those municipalities on the periphery or abutting the Metropolitan area could decide if they wanted to join the National RED or the Metropolitan RED.
Dr. Rencontre stated it was vital that there was no delay in implementing the regulatory environment, because the City of Cape Town had planned to enter into a power purchase agreement with the Darling Wind Farm. The City would have to develop a green energy market and this would be far easier to do in a regulated environment.
Mr Molefe wanted to know what the challenges were with regard to capacity in terms of human and physical resources for RED 1.
Mr Mowzer responded that ESKOM had been part of the process that led to the establishment of RED 1, and ESKOM and the City of Cape Town would transfer their staff and assets into RED 1 by 1 March 2006.
He continued that ESKOM had agreed that in future meetings they would look at the issue of building the capacity of RED 1 through staff secondment and RED 1 believed that to give effect to the Cabinet resolution it would be ideal for ESKOM to transfer in at the same time as the City staff.
He said that in terms of electrification and services to communities, RED 1 was holding meetings with the City and ESKOM to ensure service delivery continued in an uninterrupted way which would alleviate the problems of power outages and blackouts.
Sustainable Energy and Climate Change Project submission
Mr N. Raklita from the Sustainable Energy and Climate Change Project which was a project of Earthlife Africa stated that they would like the Electricity Regulation Bill to give effect to affordable tariffs, equitable access to transmission and distribution networks and the rationalisation of new generation capacity.
Mr Molefe (ANC) commented on the issues of job creation and accessibility to transmission and distribution networks and said they were more interventionist, and he hoped this would be dealt with more fully by other presenters in the Section 76 Bill.
Mr. Kritzinger stated that the Bill should give structure to the future of the electricity supply industry and a holistic approach was required. Certain amendments to the MFA were recommended, as well as that key performance indicators should be legislated for such as expenditure on maintenance and refurbishment and contributions to municipalities.
He continued that interim measures to facilitate the end state of the 6 REDs and ring-fencing had to be completed.
Adv. Schmidt (DA) wanted clarity on what was meant by typical expenditure on maintenance and refurbishment.
Mr Kritzinger responded that the problems suffered by City Power was due to a lack of maintenance and it was imperative that a directive be issued to state which amount of turnover should be spent on maintenance. It was of no use to balance the budget to the detriment of maintenance.
The meeting was adjourned.
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