A call for an EDI emergency plan with greater and long-term consensus
By Dinga Sikwebu
Num-Numsa submission to Parliament’s portfolio committee on energy and the committee on cooperative governance and traditional affairs on the possible restructuring of the electricity distribution industry
The National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (Numsa) welcome this opportunity to submit their views on the possible restructuring of the electricity distribution industry (EDI).
As unions that organise the majority of the 31 000 workers in the energy sector, we are aware of the following developments that have an impact on the restructuring of the electricity distribution industry in South Africa:
• The restructuring of the EDI has been on the national agenda for more than a decade and the subject of much discussion among the various stakeholders.
In March 1997 Cabinet approved the consolidation of EDI with the intention of establishing six regional electricity distributors (REDs). Subsequently, the White Paper on energy policy of 1998 gave effect to the restructuring of the electricity distribution industry and made provision for the appointment of an authority to oversee its restructuring. In 2006 the Cabinet approved the establishment of six wall-to-wall REDs and agreed among other things:
• that the Department of Minerals and Energy (now the Department of Mineral Resources), through the company Electricity Distribution Industry Holding (EDIH), will oversee and control the establishment of REDs; and
• that EDI restructuring legislation will be introduced and that a national electricity pricing system will be developed.
• In December 2010, Cabinet decided to discontinue the process of restructuring the electricity distribution industry through the establishment of the REDs.
• This decision meant that EDIH, the company established in terms of the Electricity Distribution Industry Blueprint Report of February 2003, will cease to exist, as its sole mandate was to establish REDs within the prescribed time-frame.
• Cabinet also approved the housing of the electricity distribution industry restructuring process within the Department of Energy … The department will now review the entire electricity value chain with a view to developing a holistic approach towards energy security as well as its financial implications.
[Source: DOE.
Revised Strategic Plan 2011/2012 – 2015/2016]
Our submission is that any restructuring plan must be based mainly on the experience and lessons of the long process to establish regional electricity distributors and the Electricity Distribution Industry Holdings (EDIH). As a country, we cannot afford a protracted process that leads nowhere.
To avoid a situation where the sector sinks further into a morass, we suggest that we strive as a country to agree on:
• a vision, key drivers and motivation for the restructuring;
• the end-state for EDI that spells out what we would like to see at the end of such a process;
• steps to be taken to get to that end-state; and
• instruments to be used to achieve the desired objectives.
Clearly, attempts to reach agreement on the above may take some time. It is for this reason that our two unions believe that an EDI emergency plan is required as an immediate intervention while we continue to seek consensus on the above.
The centrality of the electricity distribution industry:
It is our understanding that the electricity distribution industry as the final stage in the delivery of electricity to end users and customers is a vital section of the entire electricity value chain.
With an asset replacement value of R260-billion, 375 957km of overhead lines, 216 927km of cable and 9,2-million customers, EDI is a substantial sector. While electricity supply relies on the availability of energy sources, for power reach customers require a reliable distribution network.
There can, therefore, be no talk of security of supply without a vibrant and well-resourced electricity distribution industry.
Unfortunately, the uncertainty around EDI restructuring has resulted in further under-investment in physical and human capital in the sector. It is generally accepted that the network is in a poor state. The 2008 Electricity Pricing Policy of the South African Electricity Supply Industry that the
Department of Minerals and Energy produced identified the following as the challenges that face EDI:
• shortages and backlog of investments;
• high level of fragmentation in terms of investments, sharing of facilities, services and people development;
• inadequately maintained networks, resulting in maintenance and refurbishment backlogs giving rise to a high cost of interruptions;
• inequitable treatment of consumers, resulting in a wide range of tariffs for the same or similar groups of consumers and also unfair discrepancies between Eskom and municipalities; and
• variation in the electrification performance in various areas.
The situation has definitely not changed. The sector remains fragmented: 187 municipalities; private distributors with licences issued by the National Energy Regulator of SA; and Eskom still distribute with different tariffs. Under-investment continues.
Our vision of the end-state for the EDI
In its submission to the portfolio committee on mineral and energy affairs on the Draft White Paper on Energy Policy in July 1998, tthe Congress of South African Trade Union (Cosatu), to which our two unions are affiliated, called for the establishment of a national electricity distributor “to consolidate all electricity distribution, including private concerns which are presently engaged in distribution”.
In terms of this vision, the national electricity distributor would have the power to set up regional and district distributors so as to ensure efficient distribution. Local government structures will be represented in the regional and local distribution structures.
Our disagreement with the vision, contained in the Electricity Distribution Industry Blueprint Report, was around the report’s insistence that the EDIH will cease to exist as regional electricity distributors are established and functional.
The vision of a vertically-integrated national electricity distributor with provincial and local subsidiaries that we put forward in 1998 still remains. We are, however, not oblivious to the fact that realising such a vision requires consensus and may require the amendment of Chapter 7 of the Constitution and other legislation, a process that will take time.
It is for this reason that we call for an EDI emergency plan while greater and long-term consensus is sought.
EDI emergency plan
With the Cabinet decision to wind up the EDIH, the Department of Energy (DoE) was mandated to take over the programme to rehabilitate the sector.
As part of this mandate, DoE adopted the Approach to Distribution Asset Management, which was developed by EDIH. The first step in this process will be to develop an in-depth assessment of the actual backlog, along with detailed geographical maps of metropolitan and secondary municipalities.
Parallel to this process is the need to identify interventions required to rehabilitate the infrastructure that is needed in the short term to ensure electricity service delivery.
The problem with the programme is that it does not seem to be moving. To ensure movement we propose an EDI emergency plan:
• The establishment of an EDI refurbishment fund;
• An exploration of how the municipal infrastructure grant could be used to rebuild the sector;
• A dedicated work stream within the Municipal Infrastructure Support Agency, focusing on rehabilitation and refurbishing of the distribution network.
• The setting by the Minister of Finance of norms and standards for municipal surcharges.
The DoE must be tasked to lead the emergency plan. Revamping and maintenance of electricity infrastructure as a way of ensuring security of supply is the stated mandate of the department (DoE’s Strategic Plan 2011/12 – 2015/16).
Outcome six of the delivery agreement that the Minister of Energy signed with the President explicitly states that in addition to implementing newly built programmes, it is the responsibility of the Minister to ensure the maintenance of electricity distribution networks.
Holistic approach to EDI restructuring
We note that the DoE has called for written comment on the following Bills:
• The Electricity Regulation Second Amendment Bill [GN 905 of 2011]; and
• The National Energy Regulator Amendment Bill [GN 890 of 2011]
Further, the Independent System and Market Operator Bill [B9 – 2012] has already been tabled before the portfolio committee on energy and public hearings were held in May this year.
The labour constituency at Nedlac expressed certain reservations about the Independent System and Market
Operator Bill, including, but not limited to the following:
• The restructuring of the electricity sector and unbundling of Eskom;
• The impact of further restructuring on jobs and electricity pricing;
• The introduction of independent power producers;
• Labour’s opposition to the privatisation of electricity; and
• The need for the large-scale introduction of renewable sources of energy on to the country’s grid.
In its submission, Numsa also expressed concern about the piecemeal manner in which changes are being introduced in the electricity sector without being guided by an explicitly agreed description of the end-state of the sector.
While this may be seen as a pragmatic way of proceeding for an integrated system such as ours, such an approach raises dangers of fragmentation:
With the establishment of ISMO, what is raised is the existence of different institutions that play different roles (planning, procurement of new generating capacity, contracting and system operation) within the electricity sector. The danger exists, therefore, for some of the functions to fall between the cracks. (Numsa Submission to PC Energy 23 May 2012)
The NUM and Numsa believe that this piecemeal approach to the restructuring of the EDI has a number of limitations and should be addressed along the following lines:
• There should be a single process that acknowledges the existence of other relevant legislation and policy developments. This initiative should attempt to cement the various policy options so that a more coherent plan emerges to address the restructuring of the electricity distribution industry.
• At Nedlac the constituencies respond to policy proposals, but we believe that there should be a more inclusive platform that allows for wider public consultation on issues such as the EDI.
As such, we would be willing to consider the establishment of an electricity council made up of all stakeholders in the industry and with significant representation of energy consumers and energy producers.
The role of the electricity council will be to advise the Minister and ensure policy coordination.
• We support the department in its attempt to “provide all South Africans, including the poorest, with affordable, reliable and sustainable electricity, which will lead to an improved standard of living”.
We also believe that any restructuring of the industry must ensure security of supply and at the same time streamline the supply of electricity in a manner that minimises cost to its customers.
• Both unions are opposed to the privatisation of Eskom. In this context we do not believe that the restructuring of the electricity distribution industry should be left in the hands of the private sector.
• With the introduction of renewable energy, NUM and Numsa believe that there is a need to build a socially owned renewable energy sector which is a mix of different forms of collective ownership such as energy parastatals, publicly-owned wind farms, cooperatives, municipal-owned electricity entities and other forms of community energy enterprise. Cosatu has already called for the establishment of a dedicated renewable energy state-owned-enterprise.
Conclusion
In conclusion, NUM and Numsa would like to see the DoE facilitate an approach that is more inclusive by bringing all stakeholders together (consumers and producers) to map out the country’s energy and electricity plan.
As Cosatu, we have signed a number of accords that should be at the centre of any plan to restructure the electricity distribution industry. Without an appropriate and fully functional EDI, the vision of a green or low-carbon economy is unachievable.
It is, therefore, in the interest of all South African social partners to conclude the EDI process in a transparent and holistic manner.