Transcript Document

ELECTRICITY DISTRIBUTION
MAINTENANCE SUMMIT
9 JUNE 2008
STREAM 1B: SECTOR STRUCTURAL AND
RESTRUCTURING ISSUES
CLLR C JOHNSON, SALGA NEC
Key Developments
since 2003
Maintenance Summit
1. RED 1 Establishment
2.
Sept 2005 / Oct 2006 Cabinet
Decisions
3. SALGA National Conference
2007
4.
Establishment of RED 1 as a municipal entity
Movement from 6+1 REDs as Municipal Entities (Sept ‘05)
to 6 Wall-to-Wall REDs as Public Entities (Oct ’06)
Municipalities resolve on matters of Electricity Distribution in
context of 2004 National Conference Resolutions
Local Gov Laws Amendment
Bill 2007
Exemptions to be granted to municipalities in respect of
chapter 8 and 8A of the Municipal Systems Act.
5.
Asset Transfer Framework
To facilitate the transfer of electricity distribution assets
from municipalities to the REDs as public entities.
6.
REDS Establishment Bill
7.
National Electricity
Emergency
8. Proposed Constitutional
Amendment
Central to the enablers that will expedite and remove a large
percentage of the restraints
Wave of electricity load shedding
Considerations to Amend the Constitution to ensure
successful implementation of restructuring
SALGA Resolutions
& Progress
Sept 2004 & April 2007
Progress 2008
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Endorse and support 25 Oct ‘06 Cabinet
Decision;
Ensure that municipalities are not worse
off on revenue with the establishment of
REDs;
Fully participate and play a leading role in
the establishment of REDs’ Regional
Engagements Forums;
Encourage all municipalities to commence
with the preparatory steps towards the
establishment of the REDs;
Pursue DME and ESKOM to conduct an
audit on electricity backlogs
Engage DME in upgrading existing
energy generation and distribution
infrastructure in terms of 2010.
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In excess of 110 municipalities signed the
Accession Agreements;
11 municipalities 100% complete with
Ring Fencing Process & 20 ongoing;
15 municipalities completed Section 78
process, with others still in the process
with funding now available on application
from EDI Holding;
Municipalities continuously encouraged to
conduct Due Diligence Process;
All Regional Engagement Forums
established;
Through NEDLAC Summit EDIH
mandated to conduct audit on
maintenance & backlogs, SALGA to
support
SALGA Resolutions
SALGA’s Response to Cabinet Decision
• SALGA NEC (4 Dec ’06) confirmed support for initiative to
establish six wall-to-wall RED’s;
• Reasons outlined for support includes:this will bring to end to the fragmentation that leads to
inefficiencies in the industry as it currently exists;
will assist in addressing the network maintenance backlog;
promote equal treatment of consumers countrywide
through a national electricity pricing system.
REDs will also assist in expediting the national
electrification programme to ensure sustainable, affordable
electricity supply to low - income consumers, regardless of
location.
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Key Considerations and
Implementation
Enablers for LG
CRITICAL AREAS OF CONCERN TO LG
• Shareholding in the REDs;
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Governance arrangements of the
REDs;
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Transfer of electricity undertakings;
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Compensation for electricity
undertakings;
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Service delivery agreements;
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Articles of association of REDs; and
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Municipal revenue stream.
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Considerations to Amend the
Constitution
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REASONS FOR CONCERN
Formulae to be used for the allocation of
shares to national government, Eskom
and municipalities;
As executive authority on electricity
municipalities to be part of decision
making;
Compensation and the valuation
methodology to be used for the valuation
of such assets;
Service delivery agreements;
As key revenue stream for municipalities,
financial incentives for municipalities to
join the REDs and impact on the credit
rating of municipalities;
Ownership of Key Industrial Customers
(whether they should be transferred over
to the REDs and the financial
implications thereof);
Motivation for constitutional amendment
and direct impact on municipal powers,
functions & revenue
Considerations to
Amend the Constitution
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Critical Elements for
Successful Restructuring
participation by municipalities is
assured and predictable;
once a municipality has
transferred assets to a RED, may
not reverse that decision;
RED management controls a
stable asset base, capable of
integration.
RED tariffs must be approved by
a single regulator, namely Nersa.
Municipalities’ participation in the
business planning of REDs must
take place in an efficient way.
Perceived Impediments for
Successful Restructuring
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Municipal participation is uncertain
and unpredictable;
If a municipality decides to
participate in RED, it may reverse
that decision, leaving REDs unstable;
Termination of the SDA with RED,
would constrain RED management
from integrating assets and systems;
Municipalities’ right to set tariffs
undermines RED management’s
ability to overcome the problem of
differentiated tariffs; and
obligation on municipalities to take
budget decisions introduce
considerable complexity and
inefficiency to RED decision-making.
Considerations to
Amend the Constitution
Constitutional Amendment
Proposal
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Option to allow national government
to limit municipalities’ legislative and
executive authority in certain
circumstances;
Circumstances would include, for
example, where a municipal function
or service can be provided to
communities more effectively,
efficiently and sustainably on a
regional basis than on a local basis.
if this option is successfully pursued,
it will mean that the current
constraints preventing national
government from effecting EDI
restructuring will be overcome.
SALGA Proposals
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Various other interventions are
required and should be explored,
including:(i) REDs participation must be
incentivised
(ii) outstanding policy issues
(shareholding, governance
arrangements for REDs,
compensation) must be addressed;
(iii) Eskom (like municipalities) must
transfer its distribution division to
REDs;
(iv) Enablers - EDI restructuring
legislation and if necessary
regulations must be promulgated to
fully implement the restructuring.
Thank You