Association of Municipal Electricity Undertakings (AMEU) of Southern Africa president Michael Rhode believes that 2011 will be one of the most challenging years that the electricity distribution industry (EDI) has experienced for some time.
The Department of Energy’s (DoE’s) medium- term risk mitigation plan has predicted a shortage of electricity from 2011 to 2016. As a result, municipal distributors will be required to assist in promoting energy efficiency and demand-side management programmes, which will result in a reduction of energy sales and, subsequently, revenue.
“While the association accepts that the approach is in the best interests of the country, the financial impact on some municipalities cannot be ignored and one wonders how municipalities are going to recover this revenue loss from other already expensive taxes and other service fees. However, the AMEU does take courage in State-owned power utility Eskom’s ambitious build programme and hopes that it all goes according to plan,” says Rhode.
Municipal distributors will have to be innovative in tackling the challenges faced by the industry, such as infrastructure investment.
A R27-billion backlog in network maintenance and refurbishment or upgrades is highlighted in the ‘Approach to Distribution Asset Management’ report, compiled by Electricity Distribution Industry Holdings (EDIH), which was established by government in 2003 to restructure South Africa’s national EDI.
“This figure, which was recently quoted by Public Enterprises Minister Malusi Gigaba as being R32,4-billion, includes all distribution networks in South Africa and not only those of municipal distributors. This is a serious issue that would not have been solved merely by restructuring the EDI,” adds Rhode.
However, he says that, since the termination of the EDI restructuring process and the subsequent scrapping of plans to create regional electricity distribution bodies – in December – the industry has been left confused about the future of the restructuring process.
“After many years of discussion and preparation for the restructuring of the EDI, it now appears that there is a change of mind by the highest authority on a project which had good intentions for the industry,” explains Rhode.
Minister in the Presidency: Performance Monitoring, Evaluation and Administration Collins Chabane says that the EDIH board will remain accountable for the EDI until the end of the 2010/11 financial year, while Cabinet has approved a recommendation that the DoE take over the programmes previously carried out under the EDIH mandate.
Rhode says that the industry seeks clarity in terms of the EDI restructuring, as it will be disappointing to lose the work done during the project.
Further, he claims that municipalities are also faced with the challenge of providing electrification connections to achieve government’s target of universal access to electricity, while the DoE applies an inequitable treatment of funding to Eskom and municipalities.
“Municipalities only receive a partial subsidy and, in numerous cases, are required to provide top-up funding to complete electrification projects. Eskom receives full funding for its electrification projects from the Integrated National Electrification Programme, but is still insisting on only providing electricity services to new housing after development has been completed.
“Similarly, the DoE is insisting that housing structures be 80% complete before funding will be considered. This results in a situation where tenants move into units that are not electrified,” Rhode explains.
Supply Chain Management
Meanwhile, he says that supply chain management, which includes regulations involving standardised bidding documents, directives for the appointment of consultants and a code of conduct for all supply chain management practitioners, is another significant challenge.
Municipal electricity distributors often claim that many of the serious delays and problems in obtaining the correct equipment and materials to perform their function of providing an adequate and reliable service to their customers can be attributed to the implementation of these regulations.
“Efforts are required to influ- ence the simplification and streamlining of these regulations, while still addressing government’s social obligations,” adds Rhode.
In terms of tariffs, municipalities are frequently criticised regarding their electricity tariffs and the level of increases implemented following Eskom’s approved tariff increases.
“Minister of Energy Dipuo Peters claimed in her AMEU 2009 Convention address that all municipalities “prudently passed on the Eskom increase of 34% to the electricity consumer” in July 2009. While this is possibly true in some cases, it can certainly not be generalised.
“This statement also highlights the common misunderstanding of the actual effect of the increases resulting from the much publicised average increases. “Meanwhile, the load patterns of some municipalities can result in an increase of as much as 40% greater than the announced average,” says Rhode.
He adds that the National Energy Regulator of South Africa (Nersa) tariff approval process did not take into account the municipal legal budget timing requirements, but indicates that there has been a significant improvement for the 2011 process.
In 2010, Nersa implemented a system of inclining block tariffs (IBTs). An Eskom document discussing the IBTs and residential tariffs says that the aim of the IBT is to provide protection for customers who use low amounts of electricity against high price increases, which results in these customers experiencing a reduction in tariff. This means that customers who consume high amounts of electricity will see increasingly punitive charges based on their electricity use.
“This was done without any consultation with the industry and has created a considerable number of difficulties for municipalities and Eskom in implementing the IBT, as well as uncertainty among customers, which requires urgent attention,” says Rhode.
Meanwhile, the delivery of an adequate electricity service and the financial viability of some municipal distributors are being severely hampered by the scourges of nontechnical losses and the theft and vandalism of electricity infrastructure.
Besides the many safety issues involved, the financial losses, both direct and indirect, are significant and adversely affect the municipal distributor, as well as the South African economy. Inadequate legislation exists to assist the revenue management and legal teams in combating these crimes, says Rhode.
“Clauses included in the Electricity Act, No 41 of 1987, which allowed for prosecutions for obstructing or diverting electricity (section 27(2)) are no longer included in the Electricity Amendment Act, No 21 of 2003.
“Further, the Second-Hand Goods Act, No 6 of 2009, promulgated in 2008, can still not be enforced by the South African Police Service as the appropriate regulations have not been written and enacted. This omission severely restricts efforts to address a number of issues involved in the debilitating theft of electrical conductors and equipment,” he explains.
Plans for 2011
Rhode says that the association intends to focus on continuing the improvement of relationships with organisations such as Eskom, the South African Local Government Association and the DoE this year to influence positive outcomes when dealing with issues in the industry.
“AMEU representatives serve on a number of bodies that formulate policy and provide solutions in the industry. The 2010 Electricity Supply Industry Forum, established in 2006 by the AMEU and Eskom to raise awareness of issues related to the provision of adequate electricity supplies during the 2010 FIFA World Cup, was extremely successful and is a good example of achieving a national objective through collaborative effort,” he explains.
Rhode believes that a similar approach can be used to tackle South Africa’s energy crisis, as the current industry is fragmented, with many members serving different political agendas.
“There needs to be a common focus among the implementers of policy and projects to cut through the political clutter to provide a secure and reliable source of electricity to customers,” he says.
Besides the increasing interest in advanced metering infrastructure, also known as smart metering, and technologies such as sensors and global-positioning systems coupled with high-tech monitoring equipment, which is used to reduce the incidence of cable theft, Rhode says that he is not aware of any new technologies that affect the municipal envi- ronment.
“However, new technology will probably be presented at the AMEU’s 2011 convention, which will be held in Cape Town from September 26 to 28,” he adds.
“The shortage of skilled staff is frequently quoted as being the biggest impediment to adequate service delivery in the municipal component of the EDI. Studies have indicated that the EDI is experiencing a shortage of about 50% skilled staff, which is a serious situation, particularly for some of the smaller municipalities,” explains Rhode.
To complicate matters further, he says that changes have been made to electrical artisan trade tests being introduced by the trade testing centre, the Indlela Centre, despite objections by the Local Government Skills Education and Training Authority (LGSeta) and many other stakeholders, including municipal training centres.
“As a voluntary association of municipal electricity distributors and the suppliers of goods and services to the industry, the AMEU is not in any financial position to provide for skills development,” says Rhode.
However, the AMEU has obtained funding from the LGSeta to assist in the training of suitable candidates wishing to obtain a Government Certificate of Competency qualification.
The training will be undertaken at the Eskom Academy of Learning and a call for applications from municipal employees will be issued in early 2011.
“The initial programme will be for six trainees, but it is hoped that this can be increased soon, as well as extended to other disciplines required by municipalities,” says Rhode.
The AMEU has an education and training committee that highlights many of the issues related to skills development. It also attempts to influence policy and action implemented by some of the bodies involved in dealing with skills development.
The association has also for many years provided a limited amount of funding to the seven universities in South Africa that have catered for engineering degrees. The universities distribute the funding to worthy bursary recipients, concludes Rhode.