The National Treasury said on Thursday that if it had to fund State-owned power utility Eskom's entire build programme of R385-billion up to 2013, it would not be able to meet any other priorities in the country.
National Treasury energy director Ronald Chauke said at a Sanea conference in Johannesburg that the government had provided Eskom with funding and guarantees, but that it could not afford to foot the entire bill for electricity expansion in the country.
To date, the National Treasury had given Eskom around R62-billion in funding and R185-billion in guarantees.
Chauke acknowledged the importance of the new build programme, commenting that South Africa's constrained electricity capacity was stifling the country's dream of growing its economy by 7% over 20 years, as recently outlined by Finance Minister Pravin Gordhan.
"Energy is the bloodline of any economy, and there is still much work to be done to this regard," he said.
Currently, the electricity sector contributes about 15% to the country's gross domestic product growth.
Also speaking at the event, the Free Market Foundation executive director Leon Louw pointed out that South Africa lost around R120-billion, or the cost of three-million reconstruction and development houses, in the few months that it was struggling with electricity supply in 2008, which was compounding every year.
"The best way to avoid this disaster from occurring again in the short term, is to impose market-clearing prices, unbundle Eskom's assets by firstly establishing an independent buyer, and to liberalise the way the industry and the country operates."
Chauke said that easing the entry for independent power producers and establishing an independent systems and market operator (ISMO) were at the top of government's agenda to bridge some of the current shortfalls in the country's electricity sector.
Eskom and the government were busy with a business case review for the establishment of the ISMO, which would see around R5-billion to R8-billion taken out of the utility's revenue stream. Chauke noted that this would have a significant impact on Eskom's balance sheet, and that the Treasury was currently assessing how it could assist the utility in this regard.
Further, the country is also saddled with an ageing distribution network with an average age of 32 years, and a backlog of about R28-billion in maintenance and rehabilitation.
Further, Chauke said that R100-million was needed to secure additional greenfield refining capacity to secure fuel requirements in the country and to decrease South Africa's dependency on imports of crude oil.
But the Treasury pointed out that all the funding that was needed to fully secure South Africa's energy requirements was hard to come by, seeing that tax revenue had been on the decrease for the past couple of years. "Even with carbon taxes and the emissions taxes effective from next week, the money is not specifically ring-fenced for the energy sector and its requirements."
The National Treasury had allocated R5,54-billion for the energy sector for the 2010/11 year, and R5,7-billion for the 2011/12 financial year.
Chauke noted that increased private participation in the electricity space was needed to ensure electricity supply.
Louw agreed, and emphasised that South Africa needed to get back on the path of freeing up its economy to ensure future growth. "Countries that have free economies grow and the others do not, it is as simple as that," he concluded.