Red One (First Regional Electricity Distributor): briefing

Meeting report

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
22 March 2006
RED ONE (FIRST REGIONAL ELECTRICITY DISTRIBUTOR): BRIEFING

Acting Chairperson: Ms M Temba (ANC, Mpumalanga)

Documents handed out:
Red One Progress Report

SUMMARY
South Africa’s first Regional Electricity Distributor, Red One, gave a briefing on their progress and challenges. The discussion that followed dealt with:
- the electricity shortage in the Western Cape,
- the transfer of the Red One business by 1 of July 2006,
- filling board member, Chief Operating Officer and electrical engineering positions,
- skilled labour shortage and
- the 2010 soccer World Cup.

MINUTES
Briefing
Mr Saleem Mowzer (Chief Executive Officer, CEO: Red One) presented the Red One Progress Report which included information about the incorporation, the governance, the strategic goals, the operational strategy, the budget for 2006/07, the plan for transferring the business by 1 July 2006 and the stakeholder’s engagement (see document).

Discussion
The Chair asked if the Red One delegation could explain the process regarding the transfer of staff and assets in more detail and why a Chief Operating Officer (COO) had not yet been appointed.

Mr Mowzer explained that the Red One was working closely with Eskom and the City regarding the transfer. A Transfer Labour Forum had been established. The forum consisted of representatives from Red One, Eskom and the five labour unions. The Red One was opting for a smooth transmission. There was so far no indication of problems, except perhaps that the application for the National Treasury asset approval had to be submitted ninety days before the transfer. The Red One had decided not to appoint a COO until after the transfer. The Electricity Director of the City had assumed the responsibilities of the COO until such time.

The Chair asked Red One to give an indication of the delay in filling the Board Member positions. She also wanted to know how many provinces would be represented as she was especially interested in Mpumalanga.

Mr Mowzer said that the Red One was negotiating with Eskom and the Department of Labour about which names to put forward. Stakeholders had also been invited to participate in the process. Since Red One was a municipal entity, the Mayor could appoint and must approve the board members. The Red One had written to the former Mayor about this.

The Chair requested that Red One send them the policy document dealing with the transfer.

Mr D Gamade (ANC, Kwazulu-Natal) asked about the due diligence concerning the transfer.

Mr Mowzer replied that they were working with two consultant companies on this issue.

Mr Gamade asked what Red One will do about their critical shortage of skilled labour.

Mr Mowzer agreed that they should have more qualified people, especially in the field of electrical engineering. Red One was currently working with the government to attract electrical engineers and other skilled staff. They were also concerned about ethnic and gender diversity.

Mr N Hendricks (UIF) referred to the Western Cape electricity shortage and asked for a realistic scenario for the winter months. What had been done to save electricity and why had they not left the existing power station in Athlone and built an extra one.

Mr Mowzer referred to the load shedding scenarios from March to August 2006 on presentation slide 13 of the Progress Report. Eskom’s Unit One was supposed to be repaired by 18 May. Until then Unit Two would produce less than normal because it could not be stopped for refueling until Unit One was repaired. Both units would be up and running by mid July.

Scenario One would be the most likely one if the use of electricity was the same as previous years and if they suffered no additional problems with their systems. In Scenario One, it might be necessary to shed load up to nine percent, which would mean a power cut for two hours at a time. In February they had experienced problems with substations not working after a shed, for instance in the Green Point/ Sea Point area. They had now identified these problems and had people on stand-by.

It would be a Scenario Two situation if both units at Eskom stopped working and, for instance, if they experienced problems with the transmission lines. They would then have to shed up to 20 percent. He claimed that Scenario Three and Four were highly unlikely and so he did not wish to go in to those.

Mr Mowzer said that the following steps had been taken to save energy:
- Campaigns in schools and businesses about energy saving such as retrofitting buildings with energy saving light bulbs
- A trial project of switching off geysers from nine am to five pm. The trial project might be extended to the rest of the Red One area, since it was a success. The owners must agree to the geysers being shut off. It was, however, easy to get consent from people when it was explained why it was necessary and that one could still use the hot water when the geyser was shut off.

Mr Mowzer explained that when the power station in Athlone was shut down in the middle of last year, the City had decided to relocate the power station. The city has decided not to keep the station in Athlone. It did not matter where the new station was located as long as it could generate enough power. A second base load station would be constructed in the Western Cape.

Mr Hendricks was concerned about the envisaged six percent growth and asked how Red One would accommodate this.

Mr Mowzer replied that the current growth was 4.9 percent and below the inflation increase. For future growth, Red One planned to maintain, repair and refurbish their infrastructure. Cape Towns’ economy was growing but this was not matched by the development of infrastructure.

Mr Gamade asked what their projected capital expenditure was and how would it be divided. He also asked about the progress in getting the R200 million in funding for the proposed stadium for the soccer World Cup in 2010. Would the stadium be completed by 2008?

Mr F Matabane (Chief Financial Officer, CFO of Red One) answered that the planned capital expenditure was R594 million for 2007, R528 million for 2008 and R502 million for 2009.

Mr Mowzer expalined that the City had made a request for proposals to constructors for the design and development of the stadium and that applications had to be submitted within the next six to eight weeks. The stadium should be completed by the end of 2008.

Meeting adjourned.