The transformation of South Africa's electricity distribution activities and the equitable applications of tariffs for all, were two vital challenges being faced by the country, Energy Minister Dipuo Peters asserted on Tuesday.

Speaking at an electricity dialogue, hosted by the South African Chamber of Commerce and Industry (Sacci) in Johannesburg, the Minister emphasised the importance of transferring South Africa's electricity distribution assets and activities to the regional electricity distributors (Reds).

State-owned EDI Holdings had been established by government to restructure the country's electricity industry into six wall-to-wall Reds, but the process has been slow.

The country "urgently" had to solve the challenges faced by its distribution networks to allow government to meet its electrification needs, while operating these networks in a financially sound manner and to benefit the consumer, Peters stated.

Further, the Minister highlighted that there were currently more than 2 000 different tariff structures that were implemented throughout the country.

She emphasised that it did not make sense for users in one municipality to pay 22c/kWh for electricity, while users in another municipality had to pay 71c/kWh.

The issue of the equitable application of tariffs had to be addressed.

Further, Peters pointed out that another important matter to be tackled was the single-buyer model that allowed only Eskom to buy power from independent power producers (IPPs).

The Energy Ministry would soon table the independent system and market operator Bill to Parliament for its consideration, said Peters.

Meanwhile, executive adviser to the CEO at Sacci, Peggy Drodskie, highlighted that it was important to find sustainable alternatives to Eskom's proposed 35% a year tariff increases over the next three years.

She said that the proposed tariff increases could result in a loss of R200-billion for South Africa's gross domestic product, as well as the loss of a further 200 000 jobs, in an environment where nearly one-million jobs had already been lost in 2009.

South Africa needed a revival of affordable electricity supply if it wanted to grow the economy, she said, adding that this was also an important consideration for the country to move to a manufacturing-based economy.

According to Sacci research, Eskom's proposed tariff increases would lead to a 3% increase in inflation, which could see the country's inflation remaining above the South African Reserve Bank's targeted 3% to 6% band.

Tariffs have increased by about 91% since 2005, which was making it increasingly difficult for local businesses to remain competitive in the global market, as well as for, particularly small businesses, to compete with cheap imports into the domestic market.

Drodskie noted that Sacci's members have indicated that they could only cope with an increase in electricity tariffs of consumer price inflation plus 3% to 5%, at most.

Sacci's members had suggested that the country move back towards the White Paper on Energy Policy, in which the participation of the private sector, through public-private partnerships, and IPPs was included into the energy sector's growth.

Drodskie pointed out that research done by growth consultancy firm Frost & Sullivan's energy analyst, Marc Goldstein, has shown that IPPs could deliver about 3 500 MW of electricity before Eskom's first new-build coal-fired power station comes on line.

Further, Sacci felt that the reintroduction of an electricity policy council and a charter for improving governance in the electricity generation industry were needed.

Sacci members also proposed that the tariffs for any new generation should be set at 80c/kWh, the level Eskom was hoping to achieve in its second multiyear price determination, and that the consumer should be charged the average of the tariffs applied to existing plant and new plant.

In this manner, tariffs could be brought in at a more manageable level and in a smoothed approach.