ATC201002: Report of the Portfolio Committee on Mineral Resources and Energy on the Independent Electricity Management Operator Bill [B14 - 2019], dated 02 September 2020

Mineral Resources and Energy

Report of the Portfolio Committee on Mineral Resources and Energy on the Independent Electricity Management Operator Bill [B14 - 2019], dated 02 September 2020:

 

The Portfolio Committee on Mineral Resources and Energy, having considered the subject of the Independent Electricity Management Operator Bill [B14 - 2019] (National Assembly – sec 76), referred to it and classified by the Joint Tagging Mechanism (JTM) as a section 76 Bill, reports as follows:

 

  1. The Bill was introduced and referred to the Portfolio Committee on Mineral Resources and Energy for consideration and report on Wednesday 23 October 2019.

 

  1. The objects of this Act are to provide for the incorporation of Independent Electricity Management Operator Bill [B14 – 2019] (IEMO) as a private company that—
    • is financially viable and that will manage the system in an efficient manner;
    • will act as a trader of electricity in line with Government policy;
    • will prepare appropriate input into the planning of electricity supply and transmission planning;
    • is responsible for the establishment, practice and maintenance of the integrated power system;
    • ensures efficient dispatch within the integrated power system; and
    • provides for matters related thereto.

 

  1. In compliance with the measures for the introduction and consideration of private members’ Bills, the committee provided reasonable notice to the member who introduced the Bill, Hon. N. Mazzone, to brief the committee on 03 December 2019 on the content of the introduced Bill. Hon. N Mazzone’s presentation stated that the Independent Electricity Management Operator Bill (IEMO) [B14 – 2019[ builds on the foundation laid down by the Independent System and Market Operator Bill (ISMO), which was an executive Bill introduced in 2012. Hon. Mazzone stated that the Independent Electricity Management Operator relies on two crucial aspects:
  • Independence – Generation and distribution are separated
  • Electricity Management Focus - Separate entity governing the buying and selling of electricity that does not have a stake in production

 

  1. On 18 February 2020 the committee was briefed by the Department of Mineral Resources and Energy on their response to the Independent Electricity Management Operator Bill [B14 – 2019]. The Department of Mineral Resources and Energy’s view on the Bill is that it establishes the Independent Electricity Market Operator as a private company. According to the department, the Bill creates a private company to execute a public function. According to the department the bill proposes to recover operational costs from tariffs, fees and charges to customers. The department stated that the Bill provides for the IEMO to choose customers for special tariffs (include, exclude) at its discretion. The department further pointed out that the IEMO seeks to treat municipalities differently (i.e. Metro’s vs Others) and that it only refers to Metro’s as customers to IEMO; and that it seeks to take over control of distribution and reticulation from municipalities

 

 

  1. On 10 March 2020, the committee had deliberations on the briefings received on 03 December 2019 and 18 February 2020. During the discussions, a number of members highlighted that the restructuring of Eskom is currently underway, and that space should be provided for this process to unfold. Members further raised concern and objected to the notion of private shareholders in the proposed Bill and questioned as to why government would want to put state-owned assets in the hands of the private sector. Several members pointed out that the Eskom Roadmap provides for the legal separation of transmission from generation and distribution. It does not provide for a private company. According to numerous members, it is not within the interests of the people of South Africa for the grid to be in private hands

 

 

  1. On 25 August 2020, the Minister of Public Enterprises, Hon P Gordhan, with the Department of Public Enterprises (DPE) briefed a joint meeting of both the Portfolio Committees on Mineral Resources and Energy; and Public Enterprises on its response to the bill. Some of the issues emanating from the meeting are as follows:
    • According to the Minister, there is inconsistency in the Bill between private and public ownership.  The original ISMO bill was premised on the ISMO being a state-owned entity, whereas the IEMO took this model and tried to superimpose private ownership structure. The private ownership model of IEMO or Independent Transmission Operator (ITSO) is not supported.
    • The department pointed out that a fundamental difference in the IEMO model is the provision that the state will not be permitted to be a shareholder in the grid operator.
    • The Minister with a several other members emphasized that the IEMO is envisaged as a 100% privately owned company. The DPE does not support the proposal that the State should have no shareholding in the IEMO and proposes the entity is fully state owned.
    • In a statement made that the IEMO model is compatible with World Bank advice, which advocates that no market participant should be involved in the grid operator; the Minister pointed out that best practice globally is for the state to retain 100% ownership of the grid operator as this is regarded as a strategic asset. According to the Minister, the Eskom roadmap give the same result as the IEMO bill, but the transmission component remains in the hands of the state as an important and strategic asset, while on the generation side there is a diversity that has already started.
    • The department pointed out that government has started a process to restructure the industry and Eskom as outlined by the DPE Special Paper on Eskom. Consultation between Government Departments (DPE, DMRE and NT) have ensued to ensure that there is alignment on the process required to restructure the industry post the Eskom unbundling.

 

  1. On 01 September 2020, the committee further discussed and deliberated on the subject matter of the Bill.

 

  1. During the deliberations, the committee considered the merits of the Bill.

 

  1. After deliberations on the subject matter of the Bill, the committee concluded that:

 

  • Eskom generates, transmits and distributes approximately 95 per cent of electricity used in South Africa. Because of this monopoly, some equate Eskom to be playing dual roles, that of a referee and a player. IEMO seeks to break this monopoly. As an independent private company, IEMO aims to introduce competition at the electricity generation level, wherein Eskom would compete with other electricity generators in terms of selling and buying electricity. The committee agrees with the statement of the Minister of Public Enterprises and the Department of Public Enterprises that the best practice globally is for the state to retain 100% ownership of the grid operator as this is regarded as a strategic asset.

 

  • The Objects of the IEMO Bill “are to provide for the establishment of the IEMO as a Public-Private Partnership entity which will provide an independent system operation to ensure safe, secure and efficient operation of the integrated power system and the trading of electricity at wholesale level, and to allow metropolitan municipalities to purchase electricity directly from IPPs, as well as to provide for matters connected therewith”. The Bill seeks to break Eskom into two separate entities – a generation and transmission/distribution entity. The aim is to privatize the generation entity in an effort to break Eskom’s monopoly on the production of energy.

 

  • In October 2019, the Minister of Public Enterprises, Mr. P. Gordhan, submitted the “Roadmap for Eskom in a reformed electricity supply industry” Special Paper to Parliament. The paper outlined the steps required to restructure Eskom, South Africa’s largest electricity utility. The paper proposes establishing a Transmission Entity (TE) that is 100 per cent Eskom owned and fully regulated. It is envisioned that the Transmission Entity will buy power from different power generators (Eskom generation as well as Independent Power Producers (IPPs)). Consideration is being given to create two or more generation subsidiaries to introduce inter-company competition and drive efficiencies in generation. With respect to Distribution, a Distribution Entity under Eskom Holdings will be formed and will be authorized to buy from the Transmission Entity, licensed municipal generators and embedded generation. The committee therefore agreed that we need to give government the opportunity to execute and implement these reform processes as outlined in the Eskom Roadmap.

 

The Eskom Roadmap, inter alia, includes:

  • Restructuring of Eskom into Eskom Holdings with three new subsidiaries:
    • Generation,
    • Transmission and
    • Distribution;
  • Formation of a Transmission Entity (TE) under Eskom Holdings to foster a competitive market and encourage the use of diverse sources of energy.
  • Consideration to create two or more generation subsidiaries to introduce intra‚Äźcompany Competition.
  • Allow for Eskom’s participation in renewable generation

 

  • The committee is also of the view that the creation of a private company to execute a public function as problematic The Transmission function and grid operation is a natural state owned monopoly to ensure fair, equitable and transparent access.

 

  • The Independent Electricity Management Operator Bill (IEMO) builds on the foundation laid down by the Independent System and Market Operator Bill (ISMO), which was an executive Bill introduced in 2012. However, the original ISMO bill was premised on the ISMO being a state-owned entity, whereas the IEMO took this model and tried to impose a private ownership structure.

 

  • Another area of concern to the committee is the explicit exclusion of the State as a shareholder.

 

  • The Bill does not explicitly reflect on how the current Eskom debt will be handled as the debt was raised at holdings level including transmission assets in the balance sheet.

 

  • Also the transfer of State assets and resources to a private company without merit or compensation is not supported.

 

  • With regard to municipalities, the committee would like to point out that the Department of Mineral Resources and Energy (DMRE) has invited comments to the amendment of the Electricity Regulations on New Generation Capacity in order to allow for municipalities that are in good financial standing to develop or procure their own power generation from Independent Power Producers (IPPs). This is in keeping with the President’s 2020 SONA Speech where he announced that Government would put measures in place to enable municipalities in good financial standing to develop or procure their own power generation from IPPs.

 

  • It should also be highlighted and pointed out that government is working on addressing a faster move towards the participation of private sector in generation.

 

The Democratic Alliance objected and requested that in line with the National Assembly Rule, Section 166 (4) (b) (i) and (ii), attach (see attached Annexure A) the views of the minority in the committee.

 

The committee, having considered the desirability of the subject matter of the Bill in terms of the measures for the introduction and consideration of private members’ Bills, reports that it has rejected the Bill.

 

  

Report to be considered.

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