Electricity Regulation Amd Bill: Negotiating Mandates; Competition Commission Annual Report 2005/06

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
6 March 2007
ELECTRICITY REGULATION AMENDMENT BILL: NEGOTIATING MANDATES; COMPETITION COMMISSION ANNUAL REPORT 2005/06

Chairperson: Ms N Ntwanambi (ANC: Western Cape)

Documents handed out:
Electricity Amendment Bill [B20B-2006] Negotiating Mandate of the Limpopo Legislature, Kwazulu-Natal Provincial Parliament, Free State Legislature, Gauteng Legislature, Northern Cape Provincial Legislature and Western Cape Provincial Parliament
Shan Ramburuth, Competition Commissioner presentation

Audio recording of the meeting

SUMMARY
The deliberation and consideration of negotiating mandates of provinces on the Electricity Regulation Amendment Bill [B20B-2006] followed a meeting which the Committee had with a delegation from the Department of Minerals and Energy (DME), Electricity Division, on 23 January 2007. The Committee delegates were tasked with taking the Electricity Regulation Amendment Bill to their respective provincial legislatures and receiving a mandate on whether or not to support the Bill as adopted by the Committee.The Committee only received mandates from six provinces. The Western Cape; Gauteng; Northern Cape; Free State; Kwazulu-Natal and Limpopo Provinces all supported the Bill. The North West province, Eastern Cape and Mpumalanga are yet to submit their mandates.

The hearing on the annual report for 2005/06 of the Competition Commission was presented by Commissioner Shan Ramburuth (Competition Commission). The Commissioner focused on current developments in the Commission. The Committee members expressed concern about the three core functions of the Commission, namely prosecution of anti-competitive behaviour, merger control and advocacy.

MINUTES
Electricity Regulation Amendment Bill [B20B-2006]: Negotiation Mandates
The Chair stated that the Committee had only received mandates from six provinces. Some of the processes followed by certain provincial legislatures were flawed. This meant that the delegates had to take their mandates back to their provincial legislatures and ensure that the proper processes were followed. The Chief Director addressed the Committee members on some of the concerns raised by their provincial legislatures regarding their negotiating mandates.

North West Province
Ms J Terblanche (DA: North West) who was meant to brief the North West Province was involved in an accident and she was unable to carry out her task timeously. Mr Z Kolweni (ANC: North West) briefed the province instead, and he was to report on the outcome even though the Committee did not receive the negotiating mandate of the North West Legislature.

Eastern Cape
Mr D Mkono (ANC: Eastern Cape) said the public hearings in the Eastern Cape had been delayed and were to take place the following week. Once these had taken place, the Eastern Cape would submit its negotiating mandate.

Mpumalanga
Ms M Temba (ANC: Mpumalanga) advised the Committee that the negotiating mandate for Mpumalanga was on its way. A public hearing would be held in due course. From the provincial legislature’s side there was no problem with the Bill. Ms Temba stated that the Mpumalanga Legislature had enquired whether the NCOP was still considering moving from the four week cycle to the six week cycle.

Free State
Ms S Mabe (ANC: Free State) read out the report on the provincial inputs regarding Electricity Regulation Amendment Bill [B20B-2006] from the Tourism, Environmental and Economic Affairs Committee of the Free State Legislature. The Free State delegation voted in favour of the Bill.

Limpopo
Mr J Sibiya (ANC: Limpopo Province) read out the findings of the Limpopo Legislature’s Portfolio Committee on Economic Development, Environment and Tourism on Electricity Regulation Amendment Bill [B20B-2006], which appeared on Pages one and two of the Negotiating Mandate. He reported that this Committee supported that Bill and gave the Limpopo delegation the mandate to vote in favour of the Bill.

Kwazulu-Natal
Mr D Gamede (ANC: Kwazulu-Natal) reported that the Kwazulu-Natal Provincial Parliament’s Portfolio Committee on Local Government and Traditional Affairs, after having been briefed agreed to mandate the Kwazulu-Natal delegation to the NCOP to support the Electricity Regulation Amendment Bill [B20B-2006].

Gauteng
Ms S Chen (DA: Gauteng) read out the process followed by the Gauteng Legislature’s Local Government Portfolio Committee in formulating its negotiating mandate. She advised that the aforementioned Committee concluded to provisionally support the Bill and solicited the Select Committee’s indulgence to allow it to propose further amendments should the views of both South African Local Government (SALGA) – Gauteng and the Provincial Executive substantively bear socio-economic, financial and political implications for the province that may require consideration prior to the passage of the Bill by the NCOP.

Western Cape
The Chair stated that because Mr P Hendricks (ANC: Western Cape) was not yet present at the meeting, that she would read out the negotiating mandate of the Western Cape Provincial Parliament. The Chair commented that this particular negotiating mandate was insufficient as it did not report on the process followed in deciding what the negotiating mandate would be. She added that public hearings were held in Oudtshoorn, Malmesbury and Caledon. The Chair advised that the Western Cape Provincial Parliament’s Standing Committee on Governance conferred on the Western Cape’s delegation in the NCOP the authority to support the Bill without any amendments.

Northern Cape Province
The Chair read out the negotiating mandate of the Northern Cape Provincial Legislature’s Portfolio Committee on Housing and Local Government to the Committee as the Northern Cape delegate was not yet present at the meeting. She pointed out comments that were made by members of the public as reported in the mandate. The Chair also read out the comment on the Bill made by the Committee on Housing and Local Government. The Northern Provincial Legislature mandated the permanent delegates to support Electricity Regulation Amendment Bill [B20B-2006], taking note of the concerns raised by the aforementioned Committee as well as those of the public. All of the above was confirmed by Ms B Matlhoahela (ID: Northern Cape).

Discussion
The Chair called upon Mr L Aphane (Chief Director: Electricity – DME) to respond to the concerns raised by the delegates from the various provinces.

Mr Aphane referred to the negotiating mandate from the Northern Cape. He pointed out that the DME is currently busy with another process, which was the rates process and the structural adjustments thereto. This process concerns the regulatory framework that relates to municipalities. As a result of this process and in that context, Mr Aphane did not want to comment on the issues raised by the Northern Cape regarding the structural adjustment process. As this process itself was still to come before the Committee for discussion. He mentioned by way of example that one of the comments made by the members of the public that tariffs in all districts should be equal. He said that he believed that this is in-line with what was being proposed in terms of the rates process. The national regulator would have a bird’s eye view as to how tariffs should be adjusted in a fair and equitable manner.

On the issue of the provision of electricity to farms, Mr Aphane advised that the Minister had made it very clear that she would like his department align itself with the President’s call for universal access by the 2012/13 financial year. The electrification process would be fast tracked to cover schools, farms and households. He stated that the big message that came out of that process was that with a firm and more rigorous regulatory environment, it would become much easier to achieve these electrification goals.

On the issue of service delivery agreements, Mr Aphane said that every now and then his department is confronted with problems, especially between Eskom and certain traditional areas where they are the licensed suppliers and the municipality, around the conditions concerning supply of electricity. According to Mr Aphane the Electricity Regulation Amendment Bill [B20B-2006] did cover this issue. In terms of the Bill, an external service provider had to conclude service agreements with the respective municipalities in order for them to provide that service.

On the comment that the National Government should budget to assist the provinces in the implementation of the Bill, Mr Aphane stated that this was outside the DME’s mandate. That the Minister should be granted more powers to intervene on certain matters, the DME believed that the Bill as it stood did provide enough leeway for intervention - be it of a support nature or be it of intervention of a corrective measure. On the issue that the law must ensure better access for vendors, Mr Aphane required clarity on this. He added that if it related to a situation where the municipality wanted to outsource, then the proper process would have to be followed.

Mr Aphane then moved on to the comments contained in the negotiating mandate of the Limpopo Legislature. He referred to the Limpopo Legislature’s Portfolio Committee on Economic Development, Environment and Tourism finding that on amendment of Section 1 of the Electricity Regulation Act (Act 4 of 2006) the reticulation was not clearly defined to be distinguished from distribution. He referred the Committee to the definition section of the Bill where it was stated that reticulation and distribution amounted to the same thing.

As to the Gauteng Legislature’s negotiating mandate, Mr Aphane was not clear on what was meant by provisional support for the Bill. He stated that his department would like to have the further amendments included in the deliberations as this would be useful to his department.

The Chair responded that a province can either support the Bill or not. Hence the Gauteng legislature had not followed the processes properly. The Chair gave all the delegates until 20 March 2007 to report to the Committee on what their provinces had finally decided.

Mr Aphane said that most of the issues raised in the meeting could be accommodated. Mainly by way of additional explanation by what the meaning and the intention of the department was. Where processes overlapped, such as the rates process, the DME had taken the deliberate decision to split the processes. What was being dealt with now was the regulation process and at a later stage the structural adjustment issues would be dealt with.

The Chair responded to Mr Aphane’s statement that the processes had been split by the DME. She said that there were time constraints. The Committee would only have a period of five months together while Parliament was in session. This related to the question that Ms Temba raised regarding the NCOP cycle. The Chair felt that they were not being fair to provinces if they took the time constraints into account. She said that it would not be possible to follow the proper processes if the delegates had to report back to standing committees, if the provinces held public hearings and if they were to report back to the Committee. This Committee wanted to consider its final mandate by 20 March 2007. However, this was too short a time as some provinces have not as yet held public hearings which was essential for them to do. The Chair proposed that the Committee meet to the following week to finalise its mandate.

The Chair called on the Committee members to engage the DME with the concerns that were raised in their respective negotiating mandates.

Mr Mkono reiterated what the Chair and Ms Tembu said regarding the six week cycle. He emphasised to the DME that the Committee’s approach was a two-pronged process, that of the NCOP and that of the provinces. He said that in some cases because of the urgency of the matter, the provinces felt that the NCOP delegates were rushing them to make a decision and failed to understand why they were not approached timeously. With regard to the public hearings, Mr Mkono pointed out that if this process was not thoroughly exhausted then it would have opened the DME up to Court proceedings. He felt that the DME needed to be assisted in this regard.

Ms C Booysen (State Law Advisor) alerted the Committee that the Office of the State Law Advisor was approached by the National Treasury concerning provisions regarding reticulation that were contained Clauses 2 and 3 of the Bill. The concerns involved the fact that the National Treasury said that this may lead to constitutional challenges where the reticulation process was not brought within the ambit of the regulator. The regulator would have ultimately decided on the licensing conditions and they could even then extend the license of the municipality. As this was the constitutional mandate given to the municipalities to reticulate, this might lead to an infringement of the mandate given to the municipality. The Office of the State Law Advisor had discussed this with the department and the DME was in agreement that the words reticulation could be removed from Clauses 2 and 3.

Mr Aphane responded that what Ms Booysen had just said would fall in line with the clearing of the Bill. He said that this would be taken to the next process in finalising the mandates.

Competition Commission Annual Report 2005/06
Commissioner Shan Ramburuth (Competition Commissioner) stated that although he was asked to present on the annual report for 2005/06 of the Competition Commission, that information was a bit dated. He said that a lot has happened since that financial year had ended. Therefore, in his presentation he was also going to deal with the more current issues that the Commission had been dealing with.

Commissioner Ramburuth explained what competition policy was and why it was needed. He went on to outline the Commission’s three main activities, namely: prosecution of anti-competitive behaviour, merger control and advocacy. He explained the application of the Competition Act which was promulgated in 1999. He explained who the competition authorities were and what the enforcement process entailed when the Commission receives a complaint. His presentation included figures for 2005/2006 in this regard.

He discussed price fixing cases that the Commission had in the financial year 2005/06. He mentioned the current cases that the Commission was dealing with. It was important to have an understanding of these cases as they illustrated what approach the Commission takes when a complaint was lodged with the Commission. Although certain behaviour was deemed anti-competitive in terms of the aforementioned Act, however he outlined what is possible to be exempted from those provisions in the Act. It would have to be on the basis of very specific public interest criteria and he explained these exemptions. He also mentioned the corporate leniency programmes that the Commission had embarked on.

Commissioner Ramburuth spoke about the second leg of the Commission’s work, namely merger control. He explained how the Commission would classify a merger and presented some statistics to the Committee on merger notifications received by the Commission for the years 2001 – 2006. He gave an example of which mergers were prohibited and which ones received conditional approval in the financial year 2005/06. He also mentioned the current merger case that the Commission was dealing with in 2007.

Commissioner Ramburuth alluded to the high regard that the international community had for the Commission. He explained that the Commission had also made international contributions and elaborated on what these were.

Commissioner Ramburuth expanded on the third leg of the Commission’s work, namely advocacy. He explained how this was an effective alternative to prosecuting anti-competitive behaviour. He stated that the Commission’s most successful advocacy campaign had been the banking enquiry.

Commissioner Ramburuth concluded that the Commission had been going through a rejuvenation process. He then highlighted the strategic plans that the Commission had made to make the Commission more efficient.

Discussion
The Chair enquired about how honest the Commission was in doing its work.

The Commissioner said that there were a few things that have been done to ensure the impartiality of the Commission and to ensure that its independence was never going to be captured by powerful private sector interests. The first was the institutional design of the Commission, in that none of the departments overlap. Their functions were completely separated. The second was that there was corporate governance which ensured checks and balances. Third, the legal nature of the proceedings gave everyone the rights to challenge decisions taken against them. Finally the proceedings of the Commission were done in a transparent way. These things ensured that the Commission maintained its impartiality and independence.

Ms Temba wanted Commissioner to elaborate on the successful interventions that the Commission had with government departments. How did the Commission ensure that an ordinary member of the community knew about the Commission? How did the Commission disseminate information to rural communities for example? She enquired if road shows were effective in doing this. Ms Temba also asked about the Commission’s joint working committee with the Independent Communications Authority of South Africa (ICASA).

With regard to the question about working together with other government departments (page 35 of the Competition Commission’s Annual Report), the Commissioner stated that the biggest input that the Commission had made was around the Electronic Communications Act. The Commission also gave input to the Motor Industry Development Programme (MIDP) as well as to the Sugar Bill. What the Commission found was that there were a few departments that it worked with more than others such as the department of forestry, the department of health, the DME Affairs and the department of public enterprises. On the flip side, the Commissioner had said that he saw that there was a move by the private sector to pitch the government departments against the Commission. Fortunately for the Commission, they already had goods relations with the respective government departments.

Regarding the question about the Commission’s outreach, the Commissioner admitted that what it was not doing enough. Although one of the Commission’s strategic goals was advocacy and communication, the Commission as yet did not have a communications department. The Commissioner believed that the Commission had prioritised correctly in that they wanted to get the cases moving, which in turn generated its own publicity. The Commissioner said that the next phase was to get out there and to do a type of outreach.

The Commissioner said that the Commission was re-igniting the joint working committee with ICASA for two reasons. Firstly, the Act giving ICASA its powers had changed and secondly, and in the past year, ICASA had had a huge staff turnover rate. Hence the two bodies are starting afresh as there was a new Act in place and new people in key positions.

Mr Sibiya asked how one could speak of free and fair competition if the Commission functioned primarily at a consumer level and not at a production level. Mr Sibiya wanted clarification as to whether the Commission wielded some anti-monopoly powers and whether this was coupled with price pegging powers. If the Commission had these powers, did they exercise them and if they did, is it done in respect of the staple foods used by the poor? Finally enquired if the Commission had any international relationship with the World Trade Organization (WTO).

As to the question whether the Commission functioned primarily at a consumer level and not at a producer level, the Commissioner stated that those two functions were linked. The Commissioner agreed with Mr Sibiya that the Commission was on the side of the consumers and that it acted on their behalf. The Commission was acting against the producers in terms of their behaviour and their pricing. However, the Committee should think of a consumer in a broader context as a producer could also be a consumer of goods.

The Commissioner affirmed that Mr Sibiya was correct in that the Commission was primarily concerned with anti-monopoly. He felt strongly that the Commission, as an institution, should demonstrate its benefits to the end consumer, and in particular to the poorer consumers. Hence it was no coincidence that the Commission was monitoring the pricing of food products such as bread, milk as well as the cost of fertilizer, which affects agriculture and the cost of these product in the end.

As to the question of the WTO, this was run by the Department of Trade and Industry (DTI). The Commission had been called upon to give input when there was a competition issue that needed to be dealt with. The competition sub-committee of the DTI had been scrapped. The other international bodies that the Commissioner referred to in his presentation were specifically competition related committees.

Mr Mkono referred to the court cases mentioned by Commissioner Ramburuth in his presentation. What was the best approach to these cases - is prosecution the best approach? He asked if the Commissioner’s concerns that he raised regarding the poaching of his staff related to the fair competition that the Commission is concerned with.

The Commissioner responded to Mr Mkono’s first question by stating that the Commission did have some level of prosecutorial discretion. In deciding how to proceed with a case, the Commission would look at which method was cheaper, less time consuming and more effective. In terms of the Commission’s strategic planning, the Commission would have an indication of which cases it would take up and which cases it would pass.

The Commissioner agreed with Mr Mkono that the poaching of the Commission’s staff is fair competition. Deloitte and Touch have carried out an exercise for the Commission in terms they have benchmarked its staff’s salaries against the market. It was found that the salaries overlapped with that of the market. The Commission wants to make representations to the Minister of Trade and Industry in this regard.

Mr Gamede asked which yardstick the Commission used when it classified mergers in terms of small, intermediate and large. Mr Gamede also referred to the issue of staff loss as alluded to by the Commissioner and that he cited one of the reasons therefore was that the Commission was unable to match the offers that the staff was receiving from elsewhere. Was the staff working for the Commission receiving competitive salaries or are their salaries too exorbitant? He enquired as to what the reasons were that the Pick ‘n Pay and Fruit and Veg City merger did not go through. Mr Gamede asked how the Commission controlled extra charges that were imposed on the consumer such as administrative charges. Did the Commission need a complainant first or could the Commission could initiate complaints out of its own.

The Commissioner responded that it classified mergers by taking two things into account, namely annual turnover and asset value. These two thresholds were set by the Minister of Trade an Industry.
The Commissioner referred to one ex-staff member who was earning in the region of R450 000,00 per annum. This same staff member was now working for Cliffe Dekker and was earning R1,5 million per annum. According to the Commissioner, the Commission could compete at that level of seniority. The private sector was now paying enormous amounts to competition lawyers to get them off the hook. On the one hand, the Commission wanted to complain about this but on the other hand it saw this as part of its success.

The failure of the Pick ‘n Pay and Fruit and Veg City merger was a straight down the line competition analysis - structural in other words. The Commission did a structural analysis at both a national and a local level. It was how the local markets would be affected that caused the merger to fail.

The Commissioner admitted that producers were making up fees and that this was a problem. He referred to a discovery that he made the other day where the bank charged research fees and there was no explanation what these fees entailed. At this point the Commission wanted to maintain an arms length relationship with the banking enquiry. The inquiry would find out what was going on and then make recommendations to the Commission. Thus the Commissioner did not want to pre-empt anything.

As to Mr Gamede’s last question, the Commissioner responded that the Commissioner could initiate his own complaint on the basis of whatever information he received. Often this was done because the Commission would receive a complaint that was not made properly in terms of law but would enable the Commission to properly articulate the complaint.

Ms Matlhoahela enquired if the Commission was investigating as to how banks arrived at their bank charges. How were property prices determined? She asked if stores could not put up notices informing consumers that the price they see is the price they pay.

The Commissioner dealt with Ms Matlhoahela’s first question when he answered Mr Gamede’s question regarding administrative charges. Property prices were not the issue for the Commission as they were market related. What was an issue for the Commission was the fee that estate agents charge. This was where price fixing occurs as the agents all agree to charge a common fee. They are not allowed to undercut each other.

Mr S Njikelana (ANC) enquired if the Commission was concerned with small town businesses where in most of the cases, because of the size of the town, one person owned everything.

The Commissioner stated that the problem was that as the thresholds are so high, the Commission mostly detected anti-monopoly behaviour at a national level and not really at a local level. With these businesses in small towns, the Commission either had to be tipped off or look out for anti-monopoly behaviour. Everything in this area of work depended on how markets were defined, as some markets were national and some markets were local.

The meeting was adjourned.