Creating a seventh electricity distributor to service smaller municipalities will help save the country’s ailing network from imminent failure, Eskom said on Wednesday.
”The difficulty one will face in time to come is that we may very well have the capacity being generated, we may very well have the capacity to transmit that electricity, but find that there is no capacity locally to distribute,” Eskom CEO Thulani Gcabashe said.
”It is very urgent that we deal with this matter now,” he told Parliament’s minerals and energy portfolio committee.
Eskom has budgeted R10,9-billion for capital investment in the next five years — mostly in generation and transmission capacity.
This is not being matched, he said, by government investment in distribution.
Municipalities have an estimated R9,3-billion backlog, and budgeted up to R5,6-billion. Only a third of municipalities are making the necessary provision, Gcabashe said.
Eskom, therefore, supported a restructured electricity distribution model involving the creation of six regional electricity distributors (REDs) based in metropolitan municipalities, and a seventh, national RED covering the remainder.
The country’s electricity requirements will be best served by having a national organisation, he said.
Eskom would transfer its business in those areas to the six metro-based REDs, which are to be formed into municipal entities under local government legislation.
The seventh RED would be made up of non-metro municipalities and Eskom’s current distribution system. It should make use of Eskom’s existing expertise and infrastructure, saving time and money, Gcabashe said.
It would run as a division of Eskom for the first three-to-five years, perhaps to become a wholly owned subsidiary at a later stage, with a possible change in ownership.
The seven-RED model was the quickest way of improving and expanding distribution capacity, he added.
”We see this as a means to get the restructuring off the ground as quickly as possible.”
”Unless we get that [distribution] right, the investments that we are making at other levels of the value chain are going to [come] unstuck.”
If efforts are not stepped up, the target of universal access to electricity by 2012 was unlikely to be met, Gcabashe said.
Only six wall-to-wall REDs were initially envisaged.
This was later changed to six metro-based REDs, with the rest of the country served by local REDs or a national one.
Eskom believed there was little justification for local REDs.
A national RED would relieve pressure from already struggling smaller municipalities, while Eskom had the skills, resources, systems and ”a track record of delivery”.
The capacity existed in Eskom and the six identified metros — Pretoria, Johannesburg, Ekurhuleni, eThekwini, Nelson Mandela and Cape Town — to make a seven-RED system work, said Gcabashe.
”Given the current challenges, unless we act very shortly and very swiftly, we believe there will be problems.
”So we are saying let’s use what we have as a basis.”
Ways can be found to make up for revenue lost to municipalities under this plan, Gcabashe said. This included fair compensation for assets sold or leased to the national RED, and for surpluses.
He provided statistics showing the seven-RED option was financially viable. The sums, reflecting an expected R1,6-billion net profit for the national RED before tax, were based on the assumption that customer cross-subsidy remained in place, service charges remained regulated, bad debt and losses did not increase and there was no need for long-term municipal service support.
The Energy Intensive Users Group (EIUG) said it will support the creation of a national RED if this meant reliable, affordable electricity.
The group represents large electricity users — a combined 40% of the country’s consumption.
At Wednesday’s public hearing, it called for all seven REDs to be public rather than municipal entities, regulated by the National Electricity Regulator of South Africa.
It also urged the government to speedily commit to a model and complete the restructuring process.
”There is a window period, and we need to get moving,” EIUG chairperson Ian Morrison told the committee.
Enabling legislation should be passed as soon as possible. — Sapa