Independent Electricity Management Operator Bill: Department of Public Enterprises & Eskom response; with Minister

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Mineral Resources and Energy

25 August 2020
Chairperson: Mr S Luzipo (ANC), Mr K Magaxa (ANC)
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Meeting Summary

Video: JM:PC on Mineral Resources & Energy and PC on Public Enterprises (NA) 25 Aug 2020

A joint virtual meeting of the Portfolio Committee on Minerals and Energy and the Portfolio Committee on Public Enterprises was briefed by the Department of Public Enterprises on its response to the Independent Electricity Management Operator Bill.

The Minister of Public Enterprises presented the reasons that had informed the restructuring of Eskom into separate generation, transmission and distribution entities. He commented that while countries had different solutions to the generation and distribution of electricity, most regarded the transmission grid as a strategic component of the supply system that was not to be privatised in any way. The objective of the Bill seemed to be the establishment of a financially viable private company that would manage the electricity system, act as a trader of electricity, and provide input into the planning of electricity supply and transmission. The Department could not support the Bill because of its explicit exclusion of the state as a shareholder in the proposed company, and the transfer of state assets to a private company without merit or compensation.  However, many of the specific provisions of the Bill were already provided for in the roadmap for the restructuring of Eskom and other policy initiatives, such as the creation of separate generation, transmission and distribution entities, and the opening of the market for generation.

Members of the ANC were highly critical of the Bill, and welcomed the Department’s opposition to it. They said that privatising the transmission of electricity would not be in the country’s best interests, as there were historical imbalances in the electricity grid which would not be addressed if the government was excluded. The ongoing unbundling of Eskom needed to be given a chance to be completed, and the Bill was not consistent with the policies of the ANC as the governing party.

Members of the EFF were also highly critical of the Bill. They said that it was a form of apartheid in disguise, because it focused on the metropolitan areas. They also made several suggestions on electricity policy, such as increasing investment in renewable energy, cancelling contracts with independent power producers -- which were vehicles for DA opportunism -- the establishment of a departmental research institute, and addressing the problem of illegal electricity connections.

Members of the DA argued that a privately-owned transmission company was consistent with World Bank recommendations, progress on the unbundling of Eskom was too slow, and that the Department and Eskom were incapable of ensuring the country’s energy security. They said that the Bill had not been engaged with because of blind adherence to the idea of a state-owned electricity monopoly, and because it had been put forward by the DA.

Meeting report

Chairperson Luzipo said that the Portfolio Committee on Mineral Resources and Energy had wanted to receive input from the Portfolio Committee on Public Enterprises as well as from the Department of Public Enterprises (DPE) on the Independent Electricity Management Operator (IEMO) Bill [B14-2019], which was why a joint meeting had been called.

DPE’s rejection of the IEMO Bill

Mr Pravin Gordhan, Minister of Public Enterprises, confirmed that the IEMO Bill concerned policies lying in the domain of the Department of Mineral Resources and Energy (DMRE), and that the DPE was merely offering its point of view. The presentation included an outline of the structure of the electricity supply industry in South Africa and internationally, comments on the IEMO Bill itself, and a discussion of Eskom’s roadmap for restructuring.

Minister Gordhan looked at the reasons that informed the restructuring of Eskom into separate generation, transmission and distribution entities. He commented that while countries had different solutions to the generation and distribution of electricity, most regarded the transmission grid as a strategic component of the supply system that was not to be privatised in any way. He looked at the present structure of the electricity supply industry as a whole in South Africa and global trends identified by the International Energy Agency (IEA), which included the restructuring of vertically integrated state monopolies such as Eskom to allow for private sector participation, and increased environmental awareness.

He said the objective of the IEMO Bill seemed to be the establishment of a financially viable private company that would manage the electricity system, act as a trader of electricity and provide input into the planning of electricity supply and transmission. In other words, it was proposing to put the key strategic component of the electricity supply system into the hands of a private company. The exclusion of the state from a key strategic asset was fundamentally unacceptable as a matter of principle, as well as being inconsistent with international trends.

Commenting on specific provisions of the IEMO Bill, he observed that many of them were already provided for in the roadmap for the restructuring of Eskom and other policy initiatives, such as the creation of separate generation, transmission and distribution entities, and the opening of the market for generation. The DMRE was also exploring ways of allowing municipalities in good financial standing to purchase power directly from independent power producers (IPPs). However, DPE could not support the Bill’s explicit exclusion of the state as a shareholder in the proposed company, or the transfer of state assets to a private company, without merit or compensation. There were also outstanding questions about the handling of Eskom’s debt and the transfer of employees, and the Bill contained conceptual confusion and contradictions around the ownership of the company. It also tried to make a distinction between metropolitan and non-metropolitan municipalities, which was unconstitutional.

Minister Gordhan discussed the roadmap for the restructuring of Eskom and some of the progress that had already been made, stressing that it had achieved many of the positive effects of the IEMO Bill without the creation of a private transmission entity. The IEMO Bill was superfluous and conceptually confused, and the DPE did not support it.

Discussion

Mr M Mahlaule (ANC) said that the DPE’s view confirmed the Portfolio Committee’s own opinion of the Bill. Privatisation of the transmission grid would not be in the best interests of the country. The ongoing restructuring process should be given a chance before introducing more legislation or reconsidering the Independent System and Market Operator (ISMO) Bill that had been withdrawn in 2014.

Mr K Mileham (DA) said his research into transmission system operators around the world had found general agreement that the functions of planning, allocation, procurement and system operation should be separated from electricity generation. There was also broad agreement that the buyer function should be separated from generation. Over 30 countries had created a separate transmission system operator (TSO), and the World Bank recommended that TSOs should be independent of market participants such as generators, distributors and suppliers, and that government ownership was not a long-term solution. He asked the Minister whether he thought the public-private ownership model of the Reserve Bank would work for the electricity supplier. He said that little practical progress on the unbundling of Eskom had been made. He asked if the Minister had obtained a legal opinion on his statement about the unconstitutionality of distinguishing types of municipalities. The DPE and Eskom had shown that they were incapable of providing energy security, and it was time for an alternative solution.

Mr D Mthenjane (EFF) said that passing the IEMO Bill into law would render Eskom useless. Although it was already useless, this was only because of its management. It could not be that Eskom had functioned well under apartheid, but not under democracy. IPPs could not be allowed the same access to the electricity market as Eskom, as Eskom was not just supposed to make money, but to increase access to electricity. The IEMO Bill was focussed only on urban areas, and was a form of apartheid in disguise. Eskom needed to expand its own generation capacity. It also needed to be moved back to the DMRE.

Ms J Tshabalala (ANC) said the IEMO Bill attempted to privatise the whole electricity supply system and explicitly exclude the government as a shareholder. This was inconsistent with the policy of the ANC. The Bill attempted to dismember Eskom, and to make sure that the onus of servicing its R450bn debt remained with the government. The ANC rejected the Bill with contempt. Laws were made in South Africa with the aim of addressing the imbalances of the past.  She commended the Department’s efforts to restructure and turn Eskom around. The DA should not be allowed to use the Parliamentary platform to try and marginalise the people through privatisation.

Ms O Maotwe (EFF) also rejected the Bill. She called on the Minister to achieve energy security in the country through the use of mixed energy sources, such as safe coal, nuclear and renewable energy. Eskom needed a renewable energy division to make optimal use of solar, wind and hydroelectricity sources. She called on Eskom to provide all households with at least 200kWh of free basic electricity. The Minister also needed to be bold and cancel all contracts with IPPs and stop the creation of new IPPs, because the opportunism of the DA went through IPPs. An independent energy economics research institute needed to be established within the DPE, and not the Council for Scientific and Industrial Research (CSIR), to give direction on the energy supply system. Legal connections should be established in informal settlements to deal with the problem of illegal connections. Energy saving at all levels of consumption needed to be explored, and a state-owned coal company should be established to supply coal to Eskom at no cost.

Ms J Mkhwanazi (ANC) supported the rejection of the Bill. All issues raised by the DA were political and not administrative. She advised the DA members to read up on the restructuring progress that had been made. She rejected the Bill on the basis of the ANC’s social transformation policies and the Bill’s exclusion of the government from ownership. Parliament should not spend any more time considering the Bill.

Mr M Wolmarans (ANC) said the Portfolio Committee on Mineral Resources and Energy had already considered the Bill and identified numerous problems, such as its confusion over the government’s involvement in the private transmission company and the status of different types of municipalities. The Department’s presentation confirmed the Committee’s concerns. It had also given details of the ongoing restructuring at Eskom, and this process needed to be given a chance.

Ms V Malinga (ANC) agreed that the Bill should be rejected because it was attempting to privatise Eskom. The unbundling of Eskom into generation, transmission and distribution entities should be allowed to run its course. Load-shedding issues could not be expected to disappear within months of starting the unbundling process. Eskom needed to be given the opportunity to provide cheap electricity to all areas of the country.

Mr G Cachalia (DA) said that the fact that the presentation had been marked “secret” when it was clearly being shown publicly at the Committee meeting was indicative of the Department’s command and control mentality. There was consensus that the country did not have a functioning publicly-owned electricity utility. He was astounded at the failure to engage with the IEMO Bill. It was being rejected out of hand on the basis of a blind adherence to the idea of a state-owned monopoly. Global trends were only selectively being adhered to. Why were the World Bank’s recommendations not considered? There had been no nuanced response to the Bill.

Mr S Kula (ANC) said that there was consensus, as Mr Cachalia indicated. It was a consensus on the rejection of the IEMO Bill with contempt. It had many fundamental flaws -- for example, entrusting a public function to a private entity. The introduction of new laws had been informed by the need to address the imbalances of the past. IPPs or other private entities were not owed anything. The IEMO Bill was unnecessary, and it would not shift the electricity supply dynamics in the country. The DA refused to accept that the Bill was flawed.

Mr Mileham raised a point of order. He said that Mr Kula was misrepresenting the situation and misleading the Committee. The DA was willing to engage on every single clause of the Bill, but could not do so because it was being rejected without engagement.

Chairperson Magaxa said that Mr Mileham’s comment was not a point of order, just a difference of opinion.

Mr Kula continued that another reason for rejecting the Bill was the arrogant way in which some Members such as Mr Mileham tried to impose their views on the majority. The majority could not be ruled by the minority. He confirmed his rejection of the Bill.

Adv L Mpumlwana (ANC) commended the DPE for its work. The bone of contention was a matter of policy. It was clear from Sections 2 and 3 of the IEMO Bill that it amounted to pure privatisation of the electricity system, in line with DA policy. However, this was against ANC policy, no matter what the World Bank might recommend, and he rejected it on these grounds. The ANC had a responsibility to the underprivileged, whereas the DA seemed to be catering to cities and wealthier citizens.

Ms C Phillips (DA) said that the responsibility to the poor should transcend policy. The country as a whole needed a policy that was to the benefit of all, regardless of which political party it originated with. It needed to ensure that all South Africans were supplied with electricity. The DA had always been willing to engage and to compromise on the Bill, but other political parties rejected it without consideration, irrespective of whether it would be to the benefit of the people.

Ms R Komane (EFF) rejected the Bill with contempt. The minority could not dictate its views to the majority. The IEMO Bill did not represent the people of South Africa, it represented those who were advantaged. The country could not be bullied by the DA into privatising Eskom.

DPE’s response

Minister Gordhan said that the IEMO Bill was a conceptual disaster, highly confused and problematic. Reading Sections 3(1)c and 3(4) of the Bill revealed that it amounted to privatisation without compensation. He did agree with Mr Mileham that there needed to be a separate transmission and system operator, and this was provided for in the Eskom roadmap. He was not sure exactly how his comparison to the Reserve Bank worked. He denied that little progress had been made on the unbundling, and indicated that the presentation described the progress that had been made.

He explained that his point about unconstitutionality had referred to the discrimination against non-metropolitan municipalities. Why should these municipalities not also be allowed to purchase electricity directly?

Mr Cachalia’s focus on the accidental marking of the presentation as “secret” showed the paucity of his thinking.

Ms Maotwe had made some very constructive suggestions. There was already a free basic provision of 50kWh per household, and some municipalities offered more. Illegal connections presented a danger at many levels, and Eskom was rolling out prepaid meters in Soweto and elsewhere. He acknowledged that energy saving measures were a weakness in South African industries and households, but were just as important as increasing the supply.

The creation of a state-owned coal company would have to be raised with the Minister of Mineral Resources and Energy.

He agreed with Members who were calling for the roadmap to be given the opportunity to be completed. He denied that there was any blind adherence to a failed system. On the contrary, government and Eskom had shown that they could be agile and accommodate new ideas in line with international standards. Nor was there any market failure -- in fact, an electricity market was being created by opening up electricity generation and enabling new kinds of transactions to take place between electricity consumers and producers.

The Committees had shown a willingness to engage on specific aspects of the Bill, but there were fundamental flaws and it would fail if its purpose was purely political. The Eskom roadmap already provided for an independent transmission entity, in accordance with the recommendations of the International Energy Agency (IEA). Public monopolies such as Eskom and Transnet needed internal and appropriate external competition to ensure efficiency and prevent a lazy reliance on the State.

He agreed with Ms Phillips that any policy should be in the best interest of all South Africans. There was no room for engagement with the Bill because of fundamental policy differences and confusion, and if it had been better crafted, it would have saved a lot of time.

Conclusion

Chairperson Luzipo said that debate should be about persuasion. No Member could claim to possess supernatural wisdom. He thanked Minister Gordhan for the presentation, which would help the Committee to take a decision.

Ms Maotwe said that the Bill was rejected, and the matter could be closed.

Mr Mileham objected that the decision on the Bill was not for the Public Enterprises committee to make.

Chairperson Luzipo said that it was not for him to make a ruling on behalf of the Public Enterprises committee. The Committee on Mineral Resources and Energy would take a decision on the IEMO Bill the following week.

The meeting was adjourned.

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