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Not the Reds again

8th August 2014

By: Terry Mackenzie-hoy

  

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Finance Minister Nhlanhla Nene was recently asked in Pietermaritzburg to comment on allegations that some municipalities were inflating electricity prices, making it difficult for businesses to operate.

He said he was aware that some municipalities, which depended on electricity for revenue, were abusing the system. He was quoted as saying: “It is a matter we have to deal with – even if it means getting to a point where we remove electricity from the hands of local government.”

It may be that he was misquoted but taking it at face value, we have a senior Minister, the Finance Minister, offering the above thoughts. I quote from Wikipedia: “The Minister of Finance is a Minister in the Cabinet of South Africa who is the political head of the National Treasury . . .”

So, one would think that the Finance Minister is quite a clever guy. Well, if he was correctly quoted, he is somewhat misinformed. Firstly, all electricity prices are approved by the National Energy Regulator of South Africa (Nersa). Thus, while any municipality may wish to fill the municipal coffers by charging lots and lots for electricity, they cannot do so without Nersa coming down on them hard. Secondly, it is the constitutional right of municipalities to sell electricity. If the Minister believes government can “remove electricity from the hands of local government”, then they will have to change the Constitution by means of a two-thirds majority vote. Given the recent showing of a 62% African National Congress majority, this is not going to happen any time soon. Why then does our Minister think so very differently? Hard do say. Can we accept that a senior Minister can be so apparently misinformed? Hard to swallow.

It is a fact that, for many years, government has wanted to take over electricity distribution in this country. Some years ago, it proposed regional electricity distributors (Reds) for each of six parts of South Africa. The theory was that each of the six would maintain and receive revenue from municipalities in its area through electricity sales and would then keep some of the revenue (for administration costs, you know) and give the municipalities back part of the revenue that was sold through the municipal electrical distribution system.

It was all explained to me and other interested parties with graphs and diagrams and government-funded seminars and it made no sense at all. At one such seminar, the story goes, a grey-beard municipal electrical engineer asked the following question: “Mr Speaker, is it not so that we can regard revenue from municipal electricity sales rather like a pot filled with mealie pap? You have to give some of the pap to the people who sold you the meal and the rest you eat yourself. “With the Reds idea, you have to give some of the pap to the people who sold you the meal and then you and a new person feed on the rest remaining. Thus you have to get less – three people: Eskom and the municipality and the Reds all get paid from the same income stream, whereas, before, it was only Eskom and the municipality.”

The point was well made. The same article that carried the opinion of the Finance Minister also stated: “Government was under pressure to find other means of producing electricity to make it more affordable.” Ah, another pipe dream. Here is what should be done: government should buy a huge bunch of small solar lights, which charge during the day and can be used at night. These can be given away to rural households. This does not solve the lights problem at night but it is a step-up from candles. Next, government should construct, wherever it can, small hydropower plants (say, less than 100 kW) and reticulate these to rural houses. Or contract somebody to do it. This must be the beginning. But, first, we should have a Finance Minister who is electrically a bit more clued up. I would be glad to assist. But, please, not the old, old rubbish about “removing electricity from the hands of local government . . .”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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