Electricity Regulation Amendment Bill [B20-2006]: public hearings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
11 October 2006
ELECTRICITY REGULATION AMENDMENT BILL [B20-2006]: PUBLIC HEARINGS

Chairperson: Mr N Mthethwa (ANC)

Documents handed out:
EDI Holdings (Pty) Ltd Written submissions
EDI Holdings PowerPoint presentation
Nelson Mandela Bay Munnicipality written submission
Nelson Mandela Bay Powerpoint presentation
Solidarity written submissions and Powerpoint presentation
Association of Municipal Electricity Undertakings written submission
Association of Municipal Electricity Undertakings Powerpoint presentation
COSATU, NUMSA, NUM and SAMWU written submission
Professor E Eberhard (UCT Graduate School of Business) written submission
City of Umhlathuze written submission
Steve Tshwete Local Municipality written submission
Business Unit South Africa (BUSA) written submission
Speech by Lindiwe Hendrics

SUMMARY
EDI Holdings, the Nelson Mandela Bay Municipality, the Association of Municipal Electricity Undertakings, Solidarity and a joint delegation from COSATU, NUM, SAMWU and NUMSA made submissions to the Committee on the Electricity Regulation Amendment Bill.

EDI Holdings believed that the main objects of defining the meaning of electricity reticulation, and facilitating restructuring were not achieved by the Bill. The proposed definition of electricity regulation would restrict local government’s executive and legislative authority over the distribution industry and was therefore subject to constitutional challenge. The attempts to define reticulation fell short in the implications of the structure of the industry, in defining the scope of electricity distribution, and in achieving quality of economic regulation. It suggested that national government must be given appropriate executive authority to make technical and environmental regulations, to undertake economic regulation and to restructure the industry, while local government would retain the power to apply municipal surcharges, to make social regulations, and to compel distributors to undertaken cut-offs on municipal request. It believed that the most legally viable mechanism to achieve these aims was through constitutional amendment. If this amendment did not find favour, then the definition of reticulation should be amended to read "Reticulation means trading to community customers". The restructuring legislation should adopt a comprehensive approach, and clearly distinguish between local and national forms of authority. The National Energy Regulator of SA should have key functions and powers delegated to it, and should set a national tariff framework. EDI Holdings further believed the new sections 37 to 41 duplicated or conflicted with other legislation and would cause constitutional challenge.

The Nelson Mandela Bay Municipality submitted that the definition of reticulation had the effect of restricting the municipality to domestic end users, excluding a class of customers that consumed more than 5 000 MWh per annum. It did not specify who should then provide reticulation to this excluded class. This restrictive definition encroached upon the functional and institutional integrity of local government, would undermine the municipality’s ability to raise revenue, to meet its social and development obligations and the duties imposed by the Bill itself to ensure access to reticulation. It was therefore inconsistent with the Constitution. The new Sections 40 and 41 were also inconsistent with the provisions of section 139 of the Constitution. The municipality believed that the difficulties inherent in the definition of reticulation could be cured by deleting the word "domestic" from the definition of community, and by deleting the words "domestic end user" and "light industrial or commercial customer". However, it suggested that sections 40 and 41 could not be cured and therefore should be deleted. Section 47 should be amended to provide for consultation with organised local government. The Bill would have general and specific effects upon municipalities’ ability to deliver, and would result in around a 35% decrease in revenue for this municipality. It did not comply with national government’s obligations to support national interests. The Nelson Mandela Bay Municipality argued therefore that the Bill had fatal flaws and would be unlikely to survive a constitutional challenge. The draft legislation was premature before a Cabinet decision had been taken in regard to Regional Electricity Distributors. The Bill should be withdrawn and reworked, in proper consultation with organised local government.

The Association of Municipal Electricity Undertakings was concerned about the definition of reticulation. It believed that the current definition in the Bill was difficult to implement and left various questions unanswered.
Distribution was synonymous with reticulation, but once again the Bill failed to make adequate provision for it or give precise definitions. Furthermore, they believed that the Bill removed the benefits of economic regulation from a number of electricity customers. The proliferation of tariffs would continue. It was difficult to see how the Regulator would perform its tasks of monitoring and regulating the performance of municipalities. The Association did not believe that it was the intention of government to reduce the effectiveness and efficiency of the Regulator and recommended that the unintended consequences of the Bill be looked at more closely and the Bill be revisited, particularly in the definitions of reticulation and regulation.

Solidarity had concluded that the Bill would not promote consolidation of the industry. Quality of supply would not be enhanced, as municipalities would cross subsidise other services with electricity funding. The objectives of EDI restructuring would not be reached by proliferation of tariffs and many municipalities did not have the necessary skills or competence to manage tariffs. There would be no standardisation of service level agreements and practices. Municipalities would not be able to reach electrification targets, as there would not be a national plan. The Regulator would lose effectiveness in having some of the powers taken away and the Minister would be unable to set policies within a national framework. To address these shortcomings, Solidarity proposed that there should be a national framework for tariffs. There should be full regulation to ensure effective standardisation and allocation of surpluses. The definition of reticulation should instead be formatted to voltages, so that 1 to 11 000 volts would be defined as reticulation and 11 000 to 132 000 volts as distribution. The power of the Regulator should be extended to oversee compliance by municipalities and to set appropriate tariffs. A process must be developed for non-compliance and incorporated in the Bill.

The joint delegation from four trade unions called for the withdrawal of the Bill until such time as the entire energy sector restructuring process had been fully examined, with participation from all stakeholders. It was felt that the reconstruction process had lost sight of certain issues, was being handled piecemeal, had not involved full consultation and attempted to reintroduce the concept of privatisation. There was a need to deliberate matters of subsidisation, tariff setting, and policy frameworks. Not only the principles of the Bill were incorrect, but it was also badly drafted. NUMSA called for redrafting of the definitions of "customer", "distributor", "price" and "service delivery agreements". It called for the deletion of the proposed sections 44 and 47, and deletion of the chapter on reticulation. The Bill assumed that national norms and standards were in place, which was incorrect, and did not deal with cross subsidies and free basic services. It did not correctly reflect that the Regulator should determine tariffs. There was a blurring of functions between the Ministers of Minerals and Energy and Provincial and Local Government. The unions were concerned about the process, about the lack of full consultation, and about the timing of the Bill, which should be suspended until NEDLAC had been given the opportunity to consider it. The Bill was not consistent with the ANC’s promises to the poor.

Questions by Members addressed the consultation processes and the conflicting powers of the Ministers referred to by COSATU, the objectives of the proposed national summit, and the national restructuring processes. Questions were put to Nelson Mandela Bay Municipality on the national government’s right to regulate, and the proposed way forward.

MINUTES
Submission by Electricity Distribution Industry Holdings (Pty) Ltd (EDIH)
Mr Sandile Maphumulo, Board Member, EDIH, reported that EDIH was a public entity, established by national government to project manage the restructuring of the electricity distribution industry (EDI) into viable regional electricity distributors (REDs). The main object of the Electricity Regulation Amendment Bill (the Bill) was to define the meaning of electricity reticulation by municipalities and to spell out and facilitate restructuring. However, EDIH was concerned about the implications of the Bill as presently worded for this process.

Ms Ria Govender (Corporate Counsel, EDI) stated that the scope of municipal authority over the distribution industry should be defined to clarify the roles of local and national government and to ensure orderly regulation of a restructured industry. Any reforms must separate the players from the regulators. Currently the National Energy Regulator of SA (NERSA) did operate at arms length from the supply industry. EDI had obtained a legal opinion that the proposed definition of electricity regulation attempted to restrict local government’s executive and legislative authority over the EDI and was subject to constitutional challenge.

EDIH believed that economic regulation should be concerned to protect consumers from monopolistic practices. The electricity supply industry was concerned with generation, transmission, distribution (wires) and trading. Although the Constitution allocated legislative and executive authority for "electricity reticulation" to local government it did not attempt to define "reticulation". EDIH believed that it was necessary to have a clear definition of reticulation so that all participants would understand the role of local government. The Bill had attempted to define reticulation but the definition fell short in several respects. Firstly, the implications for the structure of the industry were unclear. The new definition sought to divide customers into those who used under 5 000 megawatt hours (MWh) and those over that amount. Many distributors supplied to both categories. Regulated activities should be ringfenced in separate business entities and the Bill now envisaged a major restructuring of such businesses. It would be difficult to divide assets between reticulation and distribution. If there was no separation it would lead to two customer categories on the same network being regulated by two separate regulators, and there would be no uniformity of tariffs.

Secondly, the new definition created uncertainty whether the definition was to cover all distribution and trading to a defined category of customers within a municipal area, or only the trading and distribution undertaken by the municipality. Thirdly, local government was authorised to undertake the economic regulation of the bulk of EDI and created the risk that the quality of economic regulation would be degraded. Municipalities who regulated would be in conflict with their role as owners and operators. National government could separate this function but not every municipality would be able to establish and maintain an arms length professional regulator. Fourthly, it would only be possible to restructure the EDI if national government had greater executive authority over the process.

EDIH suggested that it would only be possible to restructure the electricity distribution industry in a reasonable, efficient and predictable manner if national government were to be given appropriate executive authority. EDIH did not suggest that local government should be divested of its executive powers, as it was possible to achieve a balance. EDIH believed that it was appropriate that local government retain the power to apply municipal surcharges to sales within the municipal area, to make social regulations, including the power to compel distributors to undertake electrification and to provide free basic services, and to compel distributors to undertaken cut-offs on municipal request. National government should appropriately have power to make technical and environmental regulations, to undertake economic regulation of the electricity supply industry and have the power to restructure the industry, including the EDI.

EDIH believed that the most legally viable mechanism to achieve these aims was through constitutional amendment. Such amendment would not remove the power of local government over reticulation but to clarify areas under the jurisdiction of national and local government. If this amendment did not find favour, then EDIH believed that there must be a far clearer definition of reticulation, based on a distinction between trading and distribution activities. The consequences of the definition must be clearly understood, there should be a combined effort to legislate for regulation, restructuring and other governance matters simultaneously, and the legislation itself should clearly distinguish between local and national authority.

EDIH suggested that the definition of reticulation should be amended to read "Reticulation means trading to community customers".

EDIH also suggested that any electricity distribution restructuring legislation must deal with the establishment of the REDs and the transfer by Eskom and municipalities of employees and businesses, and the manner in which they would ringfence businesses before transfer. It should also set out the manner of preparing inventories of assets and liabilities and the manner of reporting to EDIH. Ownership, governance and reporting requirements of REDs should be clearly set out. The existing legislation should be streamlined, particularly the Municipal Systems Act and the Municipal Finance Management Act (MFMA). The conditions for winding up of REDs, the procedure for resolving disputes and practical transfer matters should also be covered.

A further problem that EDIH foresaw with the Bill was that the proposed new sections 37 to 41 duplicated some provisions already contained in other legislation, or conflicted with other provisions, thus being either unconstitutional or leading to the danger of fragmentation. Any intervention schemes proposed in the Bill must be consistent with the Constitution to avoid the possibility of constitutional challenge.

In conclusion, Ms Govender emphasised that EDIH supported efficient, effective and consistent regulation. Any amendments should empower the Minister of Minerals and Energy to delegate key powers and functions to NERSA. If no single economic regulator of tariffs could be created, then the Bill should provide that NERSA should set a national framework. EDIH supported the initiative to define the extent of municipal authority but could not support the manner in which the reticulation and the regulatory system had been drafted.

Submissions by the Nelson Mandela Bay Municipality
Adv Graham Richards, Municipal Manager, Nelson Mandela Bay Municipality (NMBM), reported that key issues were the definition of reticulation (which was considered inconsistent with the Constitution), the intervention processes set out in the proposed sections 41 and 42, the restriction of the constitutional right afforded to local government to reticulate, which in turn affected their ability to deliver on their development mandates and the adverse effects of the Bill on municipalities in general and NMBM in particular.

Adv Richards stated that Section 156 of the Constitution conferred executive authority on a municipality in respect of certain local government matters, which included provision of services in a sustainable manner and the promotion of social and economic development. The services included electricity reticulation. The provision of services would allow a municipality to fulfil its constitutional obligations of development and the fees for these services formed the fiscal base of municipalities.

The broad objective of the Bill in regulating reticulation services was not objectionable, and the proposed sections 28-31 were not inconsistent. However, some of the definitions had the effect of limiting the scope of municipal functions that were set out in the Constitution. Firstly, the definition of reticulation was "trading with or distribution of electricity by a municipality to a community". A community was defined as domestic end users, and this term had its own definition. The effect of the definition of reticulation would effectively restrict the municipality to domestic end users, thus excluding a class of customers that consumed more than 5 000 MWh per annum. Furthermore the Bill did not state who should then provide reticulation to this excluded class.

NMBM believed that the restrictive definition encroached upon the functional and institutional integrity of local government. Exclusion of a whole class of customers would undermine the municipality’s ability to raise revenue, to meet their social and development obligations and the duties imposed by the Bill itself to ensure access to reticulation. Therefore NMBM believed that the definition was inconsistent with the Constitution.

Adv Richards pointed out that NMBM believed that the new Sections 40 and 41 were also inconsistent with the provisions of Section 139 of the Constitution. This section provided the only mechanism for intervention in local government and was limited to cases when a municipality could not or did not fulfil its executive obligations. The new Section 41 was inconsistent with these provisions, as it did not duplicate any of the safeguards or oversights of Section 139, gave wide authority to the Minister of Minerals and Energy, and was extremely poorly drafted. It purported to allow the Minister power to deviate from the Municipal Systems Act, the Municipal Structures Act and the Municipal Finance Management Act to an undefined extent. It also attempted to impose certain obligations upon the Regulator that were inconsistent with Section 139.

NMBM believed that the difficulties inherent in the definition of reticulation could be cured by deleting the word "domestic" from the definition of community, and by deleting the words "domestic end user" and "light industrial or commercial customer". However, NMBM did not believe that it was possible to amend the proposed sections 40 and 41, and suggested they be deleted entirely.

Furthermore, the amendment to section 47 of the Electricity Regulation Act did not require the Minister to consult with organised local government before making regulations. NMBM believed that he or she must do so, which would be consistent with the MFMA and Municipal Systems Act.

Adv Richards stated that the Bill would impact upon the Nelson Mandela Bay Municipality in general and specific ways. As already stated, the Bill would detract from municipalities’ ability to fulfil their developmental objectives. Municipalities would be limited also in setting tariffs for smaller users, and this would have serious practical implications. International practice did not utilise energy consumption as a measuring tool to categorise customers, but relied instead upon demand capacity. The current requirements were not practicable and did not reflect the realities of electricity reticulation. The effect of these requirements upon NMBM specifically would be to exclude 84 customers who accounted for 35% of total energy sales and 38% of revenue. That would impact adversely upon existing supply and reticulation agreements with the Coega Industrial Development Zone, which had resulted in millions being spent on networks. It was not practicably possible to split these networks. Loss of economies of scale would increase operational demand and load smaller consumers. The split tariff regime that would result if the Bill were to be implemented was not properly aligned to the redistribution agenda, would be difficult to implement and would not facilitate lower tariffs. Finally the Bill did not comply with the national government’s role to support national interests at a macro level.

Adv Richards concluded that the Bill had fatal flaws and would be unlikely to survive a constitutional challenge. NMBM agreed with the South African Local Government Association (SALGA) that the draft legislation was premature before a Cabinet decision had been taken in regard to the REDs. He accordingly submitted that the Bill should be withdrawn and reworked, in proper consultation with organised local government.

Submission by the Association of Municipal Electricity Undertakings
Ms Sy Gourrah, General Manager and Vice President Elect, Association of Municipal Electricity Undertakings (AMEU) reported that AMEU was established in 1915. Municipalities were members, and councillors and engineers were represented. It gave technical support to SALGA and had been involved in the distribution industry’s restructuring since 1992.

AMEU was concerned about the definition of reticulation. In considering the issue, AMEU questioned whether the Bill adequately addressed the identity of the customer, whether customers would pay different tariffs, who would be responsible for owning and maintaining networks, and who was the service provider. AMEU believed that the current definition in the Bill was difficult to implement and left various questions unanswered.

AMEU further pointed out that distribution was synonymous with reticulation. The Bill referred to wires and other related services downstream from transmission. Distribution could only be undertaken by distributors who should be appointed by service delivery mechanisms in terms of the Municipal Systems Act.

AMEU believed that the Bill removed the benefits of economic regulation from a number of electricity customers. The proliferation of tariffs would continue and be extended to areas previously handled by Eskom. It was difficulty to see how NERSA would perform its tasks of monitoring and regulating the performance of municipalities in complying with the Act.

AMEU did not believe that it was the intention of government to reduce the effectiveness and efficiency of NERSA in regulating the whole electricity supply industry. AMEU therefore recommended that the unintended consequences of the Bill be looked at more closely and the Bill be revisited. Specifically, it was necessary to rework the definitions of reticulation and regulation.

Submission by Solidarity
Mr Ossie Olivier, Solidarity Organiser in Gauteng, reported that Solidarity had examined the proposed amendments to check whether they fell in line with the objectives of the electricity distribution industry restructuring. Specifically, Solidarity had considered whether the amendments promoted consolidation of the industry, ensured quality of supply, standardised the industry, met electrification needs, achieved equality of tariffs and set up adequate frameworks for the industry and its regulation. Solidarity had concluded that consolidation would not be promoted, since authority would be shared by the Regulator and the Minister, and would not allow a consolidated industry to place staff wherever needed, to solve the problems that municipalities had in retaining skilled staff. Quality of supply would not result, as municipalities would cross subsidise other services with electricity funding. The objectives of EDI restructuring would not be reached by proliferation of tariffs and many municipalities did not have the necessary skills or competence to manage tariffs. There would be no standardisation of service level agreements and practices. Municipalities would not be able to reach electrification targets, as there would not be a national plan. The Regulator would lose effectiveness in having some of the powers taken away and the Minister would be unable to set policies within a national framework.

Solidarity therefore submitted that in a number of respects the proposed amendments did not support the overall restructuring objectives, would not address non-adherence, duplicated powers and would not achieve equity on tariffs and quality of supply.

Solidarity proposed that there should be a national framework for tariffs. There should be full regulation to ensure effective standardisation and allocation of surpluses. The definition of reticulation should not be expressed in its current form, but should instead be formatted to voltages, whereby 1 to 11 000 volts would be defined as reticulation and 11 000 to 132 000 volts as distribution. The power of the Regulator should not be curtailed but extended to oversee compliance by municipalities and to ensure that tariffs were appropriate. Finally there must be a process developed to deal with non-compliance and this process should be included in the Bill.

Submission by Congress of South African Trade Unions (COSATU), National Union of Mineworkers (NUM), National Union of Metal Workers of South Africa (NUMSA) and South African Municipal Workers Union (SAMWU)
A joint delegation handled various aspects of the submission. Mr Derrick Elbrecht, National Coordinator, NUM. stated that the electricity supply sector was one of the main priorities addressed in the Reconstruction and Development Programme for South Africa. The Department of Minerals and Energy had commissioned a blueprint from PriceWaterhouseCoopers, which called for managed liberalisation of the electricity industry, which was not supported by this delegation. Some of the principles appeared to have lost priority, including questions of accessibility, affordability, availability, and duplication of costs of infrastructure. The restructuring programme had not been made public and not all stakeholders were fully involved. The delegation was concerned that the Department of Minerals and Energy seemed to be tackling certain issues in a piecemeal fashion.

Mr Nathaniel Kgoete, Shop Steward, NUMSA, added that NUMSA was concerned about the failure to consult fully with key stakeholders, including consultation with the National Economic Development and Labour Council (NEDLAC) and COSATU. The Bill had several social, economic and labour implications. When the previous Bill of 2005 was tabled, NEDLAC had agreed that there was a need to further deliberate matters of subsidisation, tariff setting, and policy frameworks but this had not been done. Section 78 of the Municipal Systems Act of 2000 prescribed the steps to be taken by municipalities when deciding upon services, and it was clear that municipalities must consult with organised labour and local communities. No such steps had been taken in respect of this process.

Mr David Macatha, Regional Chairperson, NUMSA, stated that NUMSA would like to see the Bill withdrawn, partially because of poor draftsmanship and partly because it failed to meet the objectives of restructuring. There needed to be cross-references to the Electricity Regulation Act of 2006. The definition of "customer" duplicated "end user". The definition of "distributor" incorrectly emphasised privatisation and the commodification of electricity. Definitions needed to be included for EDI Holdings and for RED. The definition of "price" should be deleted as it duplicated "tariff". "Service delivery agreement" should be deleted as it provided for service participation of the private sector and abdicated the obligations of municipalities. "Service provider" should also be deleted, and section 44, which referred to service providers, needed to be deleted altogether, as it was considered inappropriate and reflected an attempt to create conditions for privatisation. The chapter on reticulation should also be deleted, as it did not provide enabling legislative frameworks. The obligations of municipalities were not reflected, and the Chapter did not deal with cross subsidies or with free basic electricity. The Bill assumed there were national norms and standards in operation, which was not the case. The relevance of the REDs had not been factored in. The proposed section 47 should be deleted as it attempted to make regulations in regard to reticulation, which was inappropriate.

Mr Neo Olyn, Union Official, NUM, stated that the objects of the Bill were stated as the provision of a framework for setting of tariffs by municipalities. However, the tariffs should be determined by NERSA. To empower the Minister of Minerals and Energy to prescribe key performance indicators would give rise to jurisdictional problems, as assessing the performance of the municipalities was the task of the Department of Provincial and Local Government. He also commented that the objectives of the Bill appeared to re-introduce the notion of privatisation.

Mr Olyn believed that the whole electricity industry restructuring process was very important but was not being tackled correctly. The various unions had been calling for a national energy summit since 2003, when all issues could be aligned and addressed appropriately, and all stakeholders could be consulted.

Mr Fred Gona, NUM Parliamentary Coordinator, reiterated that the unions were concerned about the process, about the lack of full consultation, and about the timing of the Bill, which should be suspended until NEDLAC had been given the opportunity to consider it. He believed there was a need to resolve the process through Section 77 of the Labour Relations Act. Proper consultation, as required by the Municipal Systems Act, had not taken place. The National Congress on Electricity Restructuring of COSATU had resolved to reject the current restructuring until a proper analysis had been undertaken of the functioning and sustainability of the REDs and the cost implications, as well as the implications for municipal and Eskom electricity distribution workers. The Bill was not consistent with the ANC’s promises to the poor. The Bills attempted to reintroduce the concepts of private sector involvement. There was no clarity on policy for a tariff structure and no certainty on the end-state vision of the national holding company or restructuring of the energy sector.

Discussion
Adv H Schmidt (DA) asked the Unions for clarity on the consultation that had taken place, as the Bill made reference to COSATU having made input. He asked if the Bill had been tabled at NEDLAC.

Ms Prakashnee Govender, Legal Coordinator, COSATU, stated that every Bill introduced was dealt with separately at NEDLAC. Although the Electricity Regulation Bill had been passed through NEDLAC, this particular piece of legislation had not been tabled. There had been no proper consultation with organised labour and this was the first comment that the unions had made on the Bill. If the Department stated that it had submissions from COSATU, COSATU would be interested to check those submissions.

The Chairman pointed out that the Bill was introduced as a mixed Bill, and not exclusively as a Section 75 Bill, so the issues arising under Section 76 would still need to be addressed. He asked if the Bill had been similarly introduced into NEDLAC, and whether NEDLAC had focused only on section 75 issues, or whether it still needed to check other aspects.

Ms Govender replied that she had not been part of the process but it appeared that the aspects of reticulation were not discussed and some aspects were to be returned for further deliberation.

Mr Gona stated that there was an understanding that this Bill was not to be signed off at NEDLAC, as the follow-ups never took place. If NEDLAC had signed it off, NEDLAC would have tabled a report to parliament.

Adv Schmidt asked if the Unions had obtained a legal opinion on the apparent conflict between the Ministerial powers on reticulation, and enquired if the Department of Minerals and Energy had called for legal opinion.

Mr Gona replied that the unions’ concerns arose from the proposed section 32 in the Bill, which referred to the Minister of Minerals and Energy acting in consultation with the Regulator in setting key performance indicators for municipalities. However municipalities were to report to the Minister of Provincial and Local Government. It was likely that confusion would occur, or that some municipalities would deliberately cloud the issues. The unions had based their concerns upon their experiences and had not yet obtained legal opinion. He did not know whether the Department of Minerals and Energy had legal opinion on the matter.

Mr S Louw (ANC) was concerned about the issues raised by the unions, but believed that their attack on the Department of Minerals and Energy was not entirely fair. He stated that government was committed to ensuring that all did have access to electricity, including the rural areas. He agreed that more needed to be done on the tariff issues. He referred to the White Paper and stated that it was not correct that the Department was trying to reach other objectives in introducing this legislation.

The Chairperson asked the unions to expand upon their call for a national summit and the objectives of such a forum. He asked where the unions would put the upcoming process of electricity distribution industry restructuring. This question was not addressed by the unions.

Adv Schmidt asked the Nelson Mandela Bay Municipality for clarity on its statement that the proposed section 44 conflicted with constitutional obligations.

Adv Richards replied that NMBM had obtained legal opinion on the issue that had informed the opinion of the municipality. Section 44 was raised in two contexts, and was more fully expanded upon in the written submissions. NMBM agreed that national and provincial governments had legislative and executive authority to ensure that effective performance took place. However that regulatory authority was qualified by section 44 of the Constitution. When exercising the authority it must follow the boundaries prescribed. The definitions now proposed in the Bill were regarded as going beyond the regulatory authority given, and would, if passed, amount to an attempt to amend the Constitution through legislation subordinate to the Constitution. The further concern about Section 44 related to its impact on the municipalities. Municipalities had a mandate in respect of electricity but the definitions sought to limit the activities to such an extent that they could not fulfil that mandate and therefore could not meet their constitutional obligations. The unions had also raised this point. This consequence was in all likelihood unintended but the Bill had failed to keep track of the larger issues.

The Chairperson commented that the Committee would obviously not wish to pass legislation that could be challenged by the Constitutional Court. He asked for clarification on the statement that there had been lack of proper consultation with local government. He also stated that the suggestion that nothing should be done until the restructuring was complete would lead to a dead end and would not help the process.

Adv Richards stated that NMBM had proposed a number of options, which perhaps had not been expressed fully in the short oral submission. If there was the view that the legislation must go forward, then proposals were made in regard to the drafting, particularly of the definition of reticulation, which would cure the unconstitutionality. NMBM believed that the proposed sections 40 and 41 could not be cured and should be deleted. The provisions of Section 139 of the Constitution and the provisions of the MFMA adequately dealt with the issues already. NMBM did not agree that the whole of Chapter 4 should be deleted. Some components were appropriate but others needed to be refined. However, whatever reworking was done, NMBM suggested that local government should be fully involved in the process.

As an alternative to amending the current Bill, NMBM, following the suggestions of SALGA, proposed that in fact nothing should be done in regard to new legislation until such time as Cabinet had given a final decision on the REDs and there was more certainty on the restructuring, at which stage enabling legislation would be developed and introduced to give effect to the Cabinet decision. Policy directives should come before regulation. NMBM agreed that there should be regulation, but thought it was appropriate to hold back on this issue until the policy was more certain.

Adv Richards stressed that consultation with local government had taken place, but called for the involvement of local government in every stage of the process of drafting legislation.

The Chairperson commented that a number of interesting and important matters had been raised and the Department of Minerals and Energy would need to examine the comments. All had agreed that restructuring was imperative and therefore all stakeholders must find ways to work together and chart a way forward.

The hearings were adjourned.