Integrated National Electrification Programme: Progress Report by Eskom & Department of Minerals & Energy

FINANCE SELECT COMMITTEE
09 October 2007
INTEGRATED NATIONAL ELECTRIFICATION PROGRAMME: PROGRESS REPORT BY ESKOM AND DEPARTMENT OF MINERALS AND ENERGY

Chairperson: Mr TS Ralane (ANC, Free State)

Documents handed out:
PowerPoint Presentation – Department of Minerals and Energy (DME)

Audio recording of meeting

SUMMARY
The Chief Director and the Executive Manager of the Department of Minerals and Energy briefed the Committee on the progress made on the Integrated National Electrification Programme (INEP) during 2006/07 and the current financial year to date.  Details of the capital expenditure and number of connections per province were provided for both the Municipal and the ESKOM programmes.  During 2006/07, 99.7% of the allocation was transferred and 72% of the targeted connections were achieved in the Municipal programme.  For the current financial year, 20% of the allocation had been transferred and 10% of the targeted connections had been made.  During the previous financial year, the ESKOM programme spent 97% of the allocated funds and provided 99% of the target for connections.  To date, 30% of the allocated funds for 2007/08 had been spent and 30% of the target for connections was achieved.

The provision of bulk infrastructure to provide electrification services in the rural areas was in progress.  Both the DME and ESKOM acknowledged that the major challenge for 2007/08 was the electrification of schools and clinics by the end of the financial year.  The Department was confident that universal access will be provided for clinics during the current year but delays were experienced with schools as a result of inaccurate information received from the Department of Education.  It was expected that all schools will be electrified by the end of the 2010/11 financial year.

Members of the Committee were concerned over the inaccurate information provided to the DME and ESKOM and requested further details and lists.  Questions raised included the extent of the interaction between the various stakeholders, issues around the reversal of allocated funds when projects were not completed in time and the reasons for the underperformances by certain provinces that were reported.

MINUTES
Briefing by Department of Minerals and Energy (DME)
Mr Ompi Aphane (DME Chief Director, Electricity) thanked the Committee for the opportunity to brief it on the progress made with the Electrification Programme.  He explained that the DME was responsible for the programme and provided funding to licensed distributors (primarily ESKOM) in accordance with the Division of Revenue Act out of the allocation received from Treasury.

Mr Martin Masemola (Executive Manager – Electrification Programme, DME) briefed the Committee on the Municipal and ESKOM Programmes (see attached document).

With regard to the Municipal Programme, details of the capital expenditure (capex) per province for the current 2007/08 financial year and the previous 2006/07 financial year were given.  The revised allocation for 2006/07 amounted to R391 million and a total amount of R390 million was transferred.  Year-to-date expenditure amounted to R335 million.  The allocation for 2007/08 amounted to R467 million, of which R94 million had been transferred to date.  Year-to-date expenditure (including municipal top-up funding) amounted to R63 million.  The Free State, Gauteng, Limpopo and North-West Provinces reflected no expenditure during the current year but the Department was aware that projects from the previous year were in the process of being completed.

The total number of household connections targeted for 2006/07 was 77,413, of which 56,021 (72%) was achieved.  The target for 2007/08 was 66,756 and a total of 6,652 (10%) had been achieved to date.  Challenges with housing delivery in Gauteng and Mpumalanga resulted in the low achievement percentages in those provinces.

In respect of the ESKOM Programme, the total capex allocation for 2007/08 amounted to R973 million, of which R313 million (30%) was spent to date.  This included the provision of bulk infrastructure to allow for electrification in rural areas.  Actual connections achieved were 27,765 against a target of 93,324.  A breakdown per province of the total allocation, the expenditure and number of connections for households and for clinics and schools for the current financial year was given.

The Department was trying to accelerate the schools and clinics programme and aimed to eradicate the backlogs over the next two years as well as reaching the targets set for the current year.  The Department of Education (DOE) had provided a list of schools requiring electrification but it was found that some of the schools on the list were already electrified.  As a result, more time had to be spent on verifying the list before implementation plans could be finalised.

An overview of the 2006/07 expenditure performance of the ESKOM programme was given.  Total expenditure to date amounted to R711 million (97%).  For the previous financial year, 76,579 connections (99%) were provided.

In conclusion, Mr Masemole summarised the Department’s focus areas for the way forward.

Mr Aphane reported that there was close collaboration between ESKOM and the municipalities.  There was regular interaction between the DME and the Department of Provincial and Local Government (DPLG).  The focus this year was to eliminate all the backlogs for clinics and to provide universal access for all schools over the next two years.  The strategy of the DME was to provide bulk infrastructure for the electrification of rural areas over the next two years, at which time an increase in the number of connections provided would be possible.  A new policy for the electrification of informal settlements was being implemented.  The challenge was that delivery of the housing programmes was out of sync with the demands of communities for service delivery.  The Department was finding ways to electrify informal settlements provided that certain minimum requirements were satisfied.

Ms Ayanda Noah (Managing Director – Distribution, ESKOM) apologised for the absence of the Chief Executive and introduced the delegates from ESKOM to the Committee.  The major challenge was the electrification of schools and clinics, where current performance was behind target.  This was as a result of the late start mentioned in the DME presentation, which impacted on the mobilisation of resources.  Another reason was the distances involved in reaching schools and clinics situated in the rural areas.  ESKOM was committed to providing the bulk infrastructure needed, particularly in areas like the Eastern Cape, KwaZulu Natal, Mpumalanga and Limpopo where there were many backlogs.  ESKOM acknowledged the challenges but was confident that plans were in place and that the funds allocated will be spent.

Discussion
The Chairperson asked for confirmation that the information provided in the presentation was up to date as it was used when engaging with municipalities.  One of the problems raised by municipalities was that ESKOM had a different list of indigents to the municipal list of indigents.  He asked the delegates to comment on that issue.

The Chairperson requested a list of all the municipalities assisted during the previous financial year as well as a list of the municipalities that will be provided with funding during the current year.  He said that there was a tendency for municipalities to abuse their borrowing powers and to make loans for electrification projects while funds were available from the DME for this purpose.  In terms of their equitable share, they then compromised some of their service delivery programmes.  The report indicated that some municipalities were not performing very well and did not complete the previous year’s projects.

Ms D Robinson (DA) referred to the statement that connections were not made in certain areas because bulk infrastructure was being built.  She wanted to know which areas were affected.  She was concerned that incorrect information about schools was provided.  This indicated an administrative problem and she requested further information to allow the matter to be investigated and addressed.  She commented that education was already in dire straits and the delay in electrification of the schools further compromised service delivery.  She requested a list of the affected clinics as well.

Mr B Mkhaliphi (ANC, Mpumalanga) noted the low levels of expenditure by certain provinces and municipalities.  He asked how many municipalities were affected by the reversal of allocated funds.  He remarked that it was important that participation with municipalities took place when Integrated Development Plans (IDPs) were formulated.  He noted the increased level of participation between the parties at the provincial level and asked to what extent the Department participated at the local level.  He asked if the provision of bulk infrastructure included the upgrading of the existing infrastructure as the quality of the power supply in certain areas was not good and it was important to provide a reliable service.

Mr Aphane replied that although the focus in the past was on expanding infrastructure, the Department was considering the matter of upgrading the existing bulk infrastructure and had submitted a proposal to the regulator to ring-fence an allowance from the electricity tariff for the purpose of rehabilitation of the existing infrastructure.

Mr Aphane said that the DME was required to make input in the IDP process.  With the exception of Gauteng, energy forums were formed in all provinces where electrification and electricity-related issues such as the provision of free basic electricity and the use of alternative energy resources were discussed.  The Department had learnt a lot about the requirements of the municipalities and the forums helped to eliminate friction.  A list of municipalities that participated in the forums can be provided to the Committee.

Mr Masemola explained that the energy forums were led by the DPLG to ensure integration.  Both district and local governments were represented and their IDPs were submitted to the energy forum.  In certain provinces (for example, Free Sate) there were district energy forums where municipalities were represented.

In response to the question about reversal of allocations, Mr Masemola explained that there were instances where municipalities advised that a project would not be completed in a particular year for some reason.  In such cases, the allocated funds were returned and re-allocated by the DME for another project.  The Department closely monitored the projects and provided both technical and project management assistance.

In reply to the Chairperson’s question, Ms Noah explained that ESKOM received the lists of indigents from the municipalities.  A possible explanation for the discrepancies in the lists was that ESKOM and the municipality concerned had different versions of the list.

Ms Noah said that a list of municipalities that were assisted by ESKOM was available.  In addition, ESKOM sent monthly reports to municipalities.

The Chairperson explained that the Committee required the lists of the schools and clinics where inaccurate information was provided in order to take up the matter with the relevant Department.

Mr Aphane remarked that the quality of the information provided was also at issue.  It was correct to list a certain school to be in need of electrification but it was then found that the school had no roof.  There were also discrepancies in the naming of schools and this had a further impact on the subsequent maintenance and payment for electricity by the province.  He undertook to provide the Committee with the list.

Mr Masemola added that certain of the schools on the list were found to be unsuitable for electrification, e.g. it was built out of mud.  The Eastern Cape has 2200 schools needing electrification but many were small schools that may be closed over the next two years.  The DME was working closely with the DOE in an attempt to ensure that at least 80 – 90% of the schools can be electrified.

Mr Masemola said that the Department had a programme in place whereby engineering students were used to assist municipalities with project management.  The larger municipalities (e.g. Cape Town, Nelson Mandela and Polokwane) had training facilities where students gained practical experience.

The Chairperson suggested that consideration was given to working with municipalities when they formulate their budgets.  Certain municipalities do not have Division of Revenue Act allocations in their budgets.  The issue of the mud schools required further discussion as Government may decide to eliminate them in future but the reluctance to electrify these schools could be misinterpreted.

Ms Robinson said that there was a problem with the records kept by the DOE.  It was essential that record-keeping was improved and it may be necessary for the DOE to report to the Committee on this issue.

Ms Abbie Mchunu (IFP, KwaZulu Natal) reported that after a small community in KwaZulu Natal was connected, the meters were not read.  Homesteads were billed for the same amount every month, regardless of the amount of electricity used.  She suggested that pre-paid meters would solve this problem.

Mr ZS Kolweni (ANC, North-West Province) wanted to know if the Department was able to detect cases where municipalities abused their borrowing powers.

Mr Mkhaliphi said that when municipalities were asked why they were not implementing their electrification projects, the reply was that by the time they had completed their planning phase, it was the end of the financial year and the funds were no longer available.  He requested clarity on this issue.

The Chairperson referred to slide 3 of the presentation and asked for an explanation of the difference between the year-to-date scheduled transfers and the year-to-date actual transfers.  He asked why no expenditure was recorded for the Free State, Gauteng, Limpopo and Mpumalanga provinces and the relatively small amount of R378 000 transferred to Limpopo.  With regard to slide 5, the number of household connections achieved so far this year was very low (10%) even though the funds were available.  He wanted to know what the major problems were.  Slide 6 indicated an underperformance of only 51% in Gauteng and 44% in Mpumalanga.  He asked for an explanation and what was being done about it.

In response to Mr Mkhaliphi’s question, Mr Masemola provided an illustration of the value chain and electrification project life cycle.  The first 15% was spent on planning, followed by 80% for the provision of infrastructure, such as power lines.  The remaining 5% provided the output, i.e. the connection to the household, school or clinic.  He explained that delays occurred at the municipal level because of the time delays from when project plans were submitted (usually by October of the previous year), the allocation of funds (in January), the identification of projects, submission to and approval from the municipal council (a further three months) and the procurement process (another three months).  Actual implementation of a project may only start in September and may not be completed before the end of the financial year.   Project life cycle may stretch over 12, 18 or 24 months.

Mr Masemola explained that in cases where no expenditure was reflected, funds had been requested by the municipality concerned, but actual expenditure had not yet been reported.

The Chairperson asked if the work was being done by ESKOM or by other providers.

Mr Aphane explained that the municipal programme was being discussed.  ESKOM projects were done differently to ensure that project expenditure was aligned within the budget period.  He added that previously, the Department allowed municipalities to roll-over projects from previous financial years.  The DME now monitored the implementation of projects and reverses allocated funds if it was not being spent.  More attention was given to ensure that the pre-engineering was done in an attempt to align project expenditure to the budget period.

Mr Masemola said that a longer planning cycle resulted in expenditure being incurred later in the year.  In certain cases, projects from the previous year were being finalised before new projects were implemented.  The Department assisted municipalities with planning on a monthly basis but had no control over the procurement processes.

The Chairperson remarked that public education was needed as in many instances, councilors did not report back to the community.  Funds were available and the communities had an expectation of service delivery.  Delays in implementation had to be communicated to the community.  It was apparent that a range of issues required further discussion with municipalities.

In response to Ms Mchunu’s question, Ms Noah said that ESKOM usually provided pre-paid meters for electrification projects and can assist with the conversion of existing meters to pre-paid meters.

The Chairperson concluded by stating that it was necessary to hold further discussions with municipalities and the Departments of Education and Health in order to enforce integration and to allow for improved planning.

The meeting was adjourned.