Plugging a power leak

2009-11-29 00:00

SOMETHING good is on the go in government. It seems the powers that be are in the process of dropping a project that has been almost a decade in the making but going nowhere. Granted, huge amounts of money have been spent, but judging from a report of a similar scheme that went awry in Namibia, we’re about to have a lucky escape. How lucky will depend on how alert we are as a citizenry in the future. If all of this sounds cryptic, read on.

For over 10 years government has been working on a scheme to take away the management of electricity from municipalities and place it in the hands of regional electricity distributors (Reds).

The rationale at the time, which sounded good, was that municipalities were failing to maintain the electricity infrastructure and something needed to be done. Proof of this was the growing number of power outages in towns and cities across the country. In addition the government stated a concern that there were over 2 000 electricity tariffs in the country and that as a result people in rural areas were paying more for electricity.

To implement Reds, the government set up a state-owned company in 2003 known as Electricity Distribution Industry (EDI) Holdings. The plan was to take away electricity distribution from some 180 municipalities and move it to the ambit of six Reds run by EDI Holdings,

However, the plan met with resistance from municipalities, which structured their electricity tariffs so that they had extra revenue to cross-subsidise other services. Municipalities did not welcome this loss of revenue. They were also worried about compensation for assets they would have to transfer to the Reds. Impatient with municipal resistance, the government forged ahead with a legislative solution by tabling the Constitution 17th Amendment Bill. The amendment was to enable national government to take away local government’s electricity distribution rights.

Last week the Daily Maverick reported disclosures from cabinet sources that this bill will be withdrawn. Apparently this is in keeping with a decision taken at the ANC’s national general council in Durban that EDI Holdings should be dissolved. This as a result of pressure from ANC aligned councils at the loss of their right to distribute electricity.

If South Africa is dropping Reds, it definitely seems the right thing to do, judging by a report in the Namibia Economist.

The CEO of the Association for Local Authorities in Namibia, Jennifer Kauapirura, said that instead of costs going down in her country, Reds has led to increased costs and higher tariffs.

She said it proved to be an additional burden on the most vulnerable people.

Kauapirura added: “From a management and business perspective, Reds in the regions in which they have been implemented so far have failed to deliver on the promises of greater efficiency and higher revenues for local authorities as Reds have taken away a key source of generating revenue without reciprocating it with reasonable returns on investment.

“Evidence on the ground indicates that Reds are very costly to consumers with additional taxation, higher personnel costs, board member fees and duplication of existing services.”

She said her organisation would support municipalities that want to pull out before Reds “bleeds them dry”.

If the past performance of South Africa’s EDI Holdings is any indication, we would have been no better off. The Daily Maverick quotes former Minister of Minerals and Energy Buyelwa Sonjica saying in 2009 that EDI Holdings and delays in implementing Reds was costing the country between R2,9 billion and R8 billlion a year. While this was happening, the maintenance backlog stood at R27 billion. One of the tasks of EDI Holdings was to begin working on the backlog. It seems it did not pay much attention to this part of its brief.

Chief director in the Department of Public Enterprises Simphiwe Makhathini, speaking at a conference last week, said South Africa would need about R32,4 billion by the end of this year to deal with the backlog — a R5 billion increase since the previous year.

Clearly something has to be done quickly and it is believed the government is working on a number of solutions.

For now electricity infrastructure maintenance remains in the hands of municipalities. From our own experience with Msunduzi Municipality we know that this is not necessarily a good thing. Revenue raised from electricity went to cross-subsidise a host of other activities within the municipality and very little was kept in the kitty for infrastructure upkeep. The result was transformer blowouts across the city and frequent power outages.

This state of affairs will carry on as long as good citizens keep silent. The forthcoming local government election is an ideal opportunity to scrutinise party mani­festoes and ask questions about municipal budgets and infrastructure maintenance … and then hold the candidates to it.

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