Workshop on the Electricity Industry Reform

Meeting report

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The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

Minerals and energy portfolio committee

13 February 2002

WORKSHOP ON THE ELECTRICITY INDUSTRY REFORM

Chairperson: Mr R. Mofokeng

Documents handed out:

An Agenda for Change for the South African Electricity Supply Industry: An Implementation Strategy for the South African EDI and ESI (Department of Minerals and Energy)

Brief overview on the Electricity Supply Industry Regulatory and the Electricity Distribution Industry Regulatory Bills (Department of Minerals and Energy)

PC Minerals and Energy revised programme for January - March 2002

Electricity Supply Industry Regulatory Bill

(Copies of the documents which are currently available in electronic format can be found on our website)

SUMMARY

A workshop was presented to the Committee on the reforms that were currently taking place in the electricity industry. The Committee had requested the workshop as major restructuring was taking place in the industry, and members wanted a comprehensive breakdown on the process. The Committee was also presented with a brief overview of the Electricity Supply Industry Regulatory and the Electricity Distribution Industry Regulatory Bills, as these were the enabling legislation spearheading the restructuring process.

The Department presented the Committee with a workshop on the reforms that were currently taking place in the South African electricity industry. Ms N. Magubane, Chief Director of Electricity in the Department, presented the workshop. The Committee was presented with a very comprehensive look at the electricity industry and the major restructuring that was taking place in it at present. The aim of the workshop was to inform the Committee on the reforms that were currently taking place in the electricity supply and electricity distribution spheres of the industry.

Mr D. Mahuma, Director of Electricity Policies, presented the Committee with a brief overview of the aims of the Electricity Supply Industry Regulatory and the Electricity Distribution Industry Regulatory Bills. The former aims to regulate the electricity supply industry through various stages of restructuring by way of the National Energy Regulatory Authority (NERA) and the latter to establish a framework for the restructuring of the electricity distribution industry by way of forming Regional Electricity Distributors (REDs).

Discussion

Mr G. Oliphant (ANC) asked if Eskom controlled 96% of electricity generation in South Africa.

Ms Magubane responded that Eskom did control 96% of the electricity generation market, whereas eight other industry players took up the remaining 4%.

Mr Oliphant asked if the price of electricity per kilowatt was an estimation or the actual prices.

Ms Magubane stated that the prices were determined by taking averages into account.

Mr Oliphant inquired about the estimated value of the electricity industry.

Ms Magubane said that it was difficult to put a figure on the exact value of the electricity industry.

Mr Oliphant then asked how the government's policy on electricity subsidization impacted on the provision of electricity in rural areas.

Ms Magubane pointed out that government's subsidization policy essentially required persons who were unable to afford electricity to be subsidized.

Ms L. Xingwana (ANC) asked what the cost to a rural family would be to have their electricity supply connected.

Ms Magubane said that rural households had a variety of tariff systems that they could choose from. The free power supply per household was 20 amps. If households required increases in power they would have to start paying if it exceeded 20 amps.

The Chairperson asked the Department to look into what the exact worth of the electricity industry was at present.

Ms Magubane agreed to look into the issue.

Ms D. Motubatse (ANC) asked why certain areas had no electricity even though there were power lines passing through them.

Ms Magubane stated that electricity distribution centers were normally set up in areas that were densely populated. The distribution became trickier in rural areas that were sparsely populated.

Mr M. Baloyi (ANC) asked what happened in instances where persons required additional power.

Ms Magubane reiterated what she had previously stated on persons wanting more power. If the needs of persons went beyond the amount that was provided free of charge, persons would have to start paying for additional power.

Mr E. Lucas (IFP) asked why commercial and not industrial areas were subsidized.

Ms Magubane noted that electricity in commercial areas was subsidized in order to set incentives for people to use more electricity.

Mr M. Ramodike (UDM) asked how the electricity industry contributed to creating jobs. He also asked how the electricity supplied by Eskom to the rest of Africa affected the reliability of the supply to South Africa.

Ms Magubane stated that if electricity output was increased it would automatically stimulate economic development and, in so doing, jobs would be created.

Mr B. Bell (DP) asked if the Regional Electricity Distributors (REDs) was a totally new concept, or would they be duplicating the work of Eskom.

Ms Magubane stated that Eskom had eight regional offices at present but that they would be restructuring themselves in order to accommodate the six REDs.

Ms Xingwana noted that some of the REDs covered larger areas than others.

Ms Magubane stated that some REDs would be given more support than others.

Mr Oliphant asked what was being done to ease tensions between Eskom and the municipalities.

Ms Magubane noted that both Eskom and municipalities were parties to a co-operative agreement.

Mr Baloyi asked a follow-up question on whether the co-operative agreement defined the shareholding of the various parties to it.

Ms Magubane said that both national and local government was consulted. It was, however, agreed that electricity distribution would remain with local government.

Mr Bell asked why the provinces had not been consulted in the electricity restructuring process.

Ms Magubane stated that only relevant stakeholders were consulted and that provinces had never been involved in the supply of electricity.

Prof I. Mohamed asked what was being done about the debts of municipalities and the debts of Eskom that were still owed to them.

Ms Magubane stated that measures were in place to address these problems. The Minister of Provincial and Local Government had been tasked with finding solutions to the problems of the local government finance system.

Mr Oliphant asked how the municipal infrastructure problems were going to affect the electrification programme.

Ms Magubane hoped that the Department would be able to secure enough funding to take care of the infrastructure backlog.

The Chair asked whether Eskom would always have 100% of the electricity generation market.

Ms Magubane pointed out that by 2006 it was hoped that Eskom would only have 70% of the market and the remaining 30% would be privately held.

Mr I. Davidson (DP) raised a concern that the electricity restructuring was believed to lead to a 40% increase in tariffs.

Ms Magubane stated that the restructuring might lead to a 20% increase in tariffs over time. The initial blueprint on the restructuring process reflected that there might be a 40% increase in tariffs, but this was no longer the case.

Mr Davidson remarked that even though he appreciated the efforts of the Department in trying to keep the Committee abreast of the electricity industry restructuring, he could not help feeling that the Committee should have been included in the process from the start so that they, as policymakers, could have been more informed on the process.

Mr Oliphant asked what the relationship would be between the National Electricity Regulator (NER) and NERA.

Mr Mahuma stated that they were one in the same. NER had been renamed as NERA.

Mr Baloyi asked if NERA would be setting tariffs for different sectors.

Mr Mahuma noted that the REDs were to be formed in order to harmonize tariff structures. NERA would be tasked with normalizing tariffs and cost effectiveness.

The meeting was adjourned.

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