DEVELOPMENTAL

LOCAL GOVERNMENT AND ELECTRICITY

DISTRIBUTIONINDUSTRY

RESTRUCTURING

MUHLOTI RUSSELL BALOYI

______________________

18 OCTOBER 2006

MIDRAND

Outline

• Purpose • Global perspective• African context• South African context• EDIR and DLG• Current reality and financials• Key issues on the current debate• Developmental Local Government • Energy Planning• NMA Resolution

Purpose

• Locate Electricity in the context of Developmental Local Government

• Relationship between service delivery in general and electricity function

• Perspective on the EDIR

TAKE AWAY

Electricity plays a critical role in addressing the developmental needs of our communities

Millennium Development Goals

• The MDG’s represent an advancement in the way in which the developmental Agenda is set with clear objectives, targets and deadlines which allows for monitoring and evaluation at any point in time

• Universal access to energy services by 2014 = necessitate full adoption and implementation of decentralization policies, strategies, etc

• The MDG’s should be used as the basis for our local policies and strategies

African Context

• Not recognized as a distinct sphere of governance

• Limited powers and functions• Lack of Accountability• Limited resources• Institutional capacity• Legislative framework• The sectoral model of decentralization used by line

ministries delay the empowerment of local government and improved service delivery

SA Context

All spheres of government are distinct spheres of governance and plays a pivotal role in economic growth and development in all areas of South Africa. Local Government is recognised by the constitution and other legislations, and located at the heart of service delivery to facilitate development.

SA Context cont…

Section 73(1) of the Local Government: Municipal Systems Act 2 of 2000 provides that a municipality must give effect to the provision of the constitution and –– Give priority to the basic needs of the local community;– Promote the development of the local community; and– Ensure that all members of the local community have

access to at least the minimum level of basic municipal services.

Not just ELECTRICITY

SA context cont…

• The overall government approach to service delivery shows that planning and authority on the delivery of basic services is devolving to the implementation level, which is developmental local government .

• This approach is clear from the restructuring of the health sector, water, housing, etc, that have seen local government assuming more responsibilities.

ELECTRICITY MUST FOLLOW

Reality

• The Electricity Distribution Industry is a highly Contested Environment, and the varying EDI desired End State and vision amongst key industry players creates a major challenge to the process. Revenue base and input for development in LG

Reality

• Municipalities are variable in their capacity to discharge their constitutional mandate, and it must be noted that the level of governance, resources, capacity and systems differ from municipality to municipality. It should therefore be acknowledged that the impact of the REDS to municipalities will differ between categories of municipalities.

LG Revenue Streams(Budget Analysis)Incme per Category -2004/2005

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Water 14% 12% 9% 6% 13%

Electricity 34% 34% 22% 28%

Property Rate 18% 18% 11% 21%

Sanitation 5% 5% 6% 1% 2%

Regional Levies 46% 7%

Refuse Removal 2% 5% 6% 3%

Grants 13% 11% 35% 26% 7%

External Interest 2% 3% 1%

Internal Interest 0% 2%

Other 10% 12% 7% 12%

Group 1 Group 2 Group 3 District Metro's

The current debate

• National vs. individual interest• Possible compromise of Blue Print objective• ERAB:Dual Regulation vs. single regulator and

definitions

• Open the non negotiable, e.g. PE or ME

• Implications for cat B municipalities

• Benefit and role to none distributing munics

• Service provider and or service authority

ESI

Generation Transmission

Distribution

Customers

Investors

Developmental LG

Balancing competing needsED & general service delivery

Operations

Communities

ESI in the Context of Service delivery

Local Energy Strategy

• A comprehensive PLAN for the municipality (covers municipal functions AND all city/town/ village activities)

• Based on integrated energy planning – DEMAND led and cross-sectoral

• Promotes sustainable energy approaches & practices at the local level within a clear vision of future city development

A planning tool/ mechanism based on partnerships between different levels of govt, utilities, NGOs, business etc.

Local energy cont…

Local energy cont…

NMA RESOLUTIONS

1).SALGA recognises the immense responsibilities that are progressively devolving to local government and call for attention to the task of building local government capacity in line with project consolidate, as opposed to disempowering municipalities in electricity distribution.

NMA cont…

2).No municipality has shown interest to be incorporated into Eskom, and should this happen, it will be unconstitutional

3).SALGA request the Department of Minerals and Energy to fast track the enabling legislations that are in line with the constitution to guide the process as a matter of urgency

4). SALGA recommend that Eskom distribution assets to be transferred to the REDs should include key customers as per the original six wall to wall REDs model and EDIR blue print

5). SALGA recommend that the end state of the restructured electricity distribution industry should establish the REDs as the only distributor to all customers, domestic, industrial, key customers, etc.

6).SALGA supports the transactional approach to REDs creation in the interest of the country and discourage quick fix National RED, that will lead to problems in the long term

NMA cont..

7). SALGA support the Six REDs Model as the End State to supply Electricity to all customers in the country

8). SALGA furthermore recommend that we Uphold, respect and recognize the following key principles that were agreed upon to guide the Electricity Industry Restructuring process;– Restructuring must be conducted in accordance with the Constitution,

taking into account that the responsibility of electricity reticulation is a municipal function;

– The Financial state of municipalities currently performing the electricity function must not be adversely affected;

– Any RED end-state model must meet the restructuring objectives set out in the EDI Blueprint that was approved by Cabinet earlier.

SALGA RECOMMEND THE SIX WALL TO WALL REDS

NMA cont..

Thank You!