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R30bn distribution backlog poses risk to supply beyond current generation shortfall – Ramokgopa

Electricity Minister Dr Kgosientsho Ramokgopa

Electricity Minister Dr Kgosientsho Ramokgopa

20th August 2023

By: Terence Creamer

Creamer Media Editor

     

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Electricity Minister Dr Kgosientsho Ramokgopa has acknowledged that South African cities and towns face the real prospect of ongoing power interruptions even if the balance between supply and demand is restored, owing to significant investment backlogs in the distribution sector.

Quoting from research conducted when he was overseeing Infrastructure South Africa, Ramokgopa estimated the backlog to be above R30-billion, given that underinvestment in maintenance and refurbishments had been found to be growing at an average yearly rate of about R2.5-billion from 2011 to 2022.

Municipal finances, he said, had not improved since that research, which meant the problem was likely larger today than when the study was concluded.

“The message I'm trying to convey is that when we get to a situation where we have resolved loadshedding, it doesn't follow that communities are going to have electricity, as a result of the failing of these [distribution] assets,” the Minister warned during a weekly update on the implementation of the Energy Action Plan.

Besides Eskom Distribution, which is in the process of being unbundled into a separate entity, there are 238 municipal distributors, some of which are currently struggling to service communities, owing to a combination of financial and skills constraints.

In addition, overdue debt owed to Eskom from municipalities now stands at R63.2-billion, having grown by R4.7-billion since April.

A total of 44 municipalities, including many of the Top 20 debtors which collectively owe R48.9-billion, have been identified as having low electricity distribution competence and only 11 of the 28 municipalities that had active payment plans as of July were honouring these plans.

It was also confirmed that only 13 municipalities had applied for the debt relief package announced by Finance Minister Enoch Godongwana in February and that only seven had, to date, been approved to participate in the scheme.

Eskom Distribution group executive Monde Bala said that a key condition for receiving relief under the scheme was for the defaulting municipality to keep its current account up to date for a period of 12 months. Such a reconciliation could take place only once a municipality had participated for more than a year.

The National Energy Crisis Committee (Necom) had established a workstream to discuss ways to finance the investment and maintenance backlogs, including by possibly securing funds from the $8.5-billion Just Energy Transition Partnership.

Engagements were also under way involving the Department of Cooperative Governance and Traditional Affairs, the National Treasury, the South African Local Government Association and Eskom to discuss how the sector could be made more sustainable in future.

A previous attempt to establish seven wall-to-wall regional electricity distributors was found to be in breach of the Constitution, which gives municipalities the authority to reticulate electricity.

However, the tabling of the Electricity Regulation Amendment (ERA) Bill, which could have far-reaching implications for the structure and functioning of the distribution sector, had been postponed. This, owing to a mishandling of changes made to the draft, which led to Parliament sending the Bill back to the Office of the Chief State Law Advisor for re-certification.

Ramokgopa refused to be drawn on the delay saying only that, from government’s perspective, the passage of the ERA under the current Parliament was regarded as urgent and that Deputy President Paul Mashatile, as leader of government business, would interface with Parliament on the matter.

In the meantime, Necom was working on proposals for some immediate changes to regulations with implications for the sector, on which the National Energy Regulator of South Africa (Nersa) would facilitate public consultations before making decisions.

A proposed net billing framework, allowing firms and households to be remunerated for electricity they feed into the grid, was under consultation, while a wheeling framework was expected to be delivered to Nersa soon.

Eskom Distribution is also developing a virtual wheeling product that will allow one or more generators to transact with multiple offtakers, including those supplied by municipal distributors.

However, the product has not yet been implemented, while a proposed August 21 launch of the Eskom Distribution Energy Trader was postponed at the last minute, owing to various approvals having not yet been secured.

Edited by Creamer Media Reporter

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