Despite all infrastructure being interdependent in a “developmental State” such as South Africa, a variety of funding and regulatory dispensations made it extremely difficult to find common ground, National Energy Regulator of South Africa (Nersa) regulator member Dr Rod Crompton highlighted during a presentation to the South African National Energy Association, in Durban, on Wednesday.
The developmental State has infrastructure expansion as one of its key platforms. But, he asked, how was this infrastructure to be procured and paid for and how should public and private investors finance it within the various and, sometimes overlapping, regulatory dispensations?
With the construction of the New Multi-Product Pipeline, he said, Transet had effectively increased its asset base from R4.7-billion to R23.4-billion. “But how can you do that when you can have no cash injection from your shareholder and no take-or-pay agreements?”
In this instance, he said choices ranged from applying for large tariff increases, which had proved “partially successful”, to an unsuccessful attempt to change regulations to apply for a security of supply level of R4.5-billion, which front-loaded this asset for 70 years. Crompton said that, in this instance, Nersa had decided to deduct this from the asset base and then to calculate the projected return, as the consumer could not be forced to pay twice.
He said front-loading was inescapable; however, as a regulator, Nersa was concerned about intergenerational equity and the fact that each generation needed to pay its fair share.
“To what extent should these State-owned enterprises be independent? There should be government policy on front-loading infrastructure. However, policy is quiet about this and development agencies are left to make the decisions,” he said.
Other key issues were the allocation of risk and the valuation of assets, which varied from historical to replacement value. Crompton said there needed to be a consistent approach. “A bundle of things need to move together so, from a State and public point of view, [we need to ensure] there is correct allocation of scarce capital. There should be a level playing field from the outset with no distortions.”
He questioned whether different regulatory dispensations were leading to distortions of the flow of capital and cautioned that there was the risk of competition for capital between sectors.
In addition, problems also arose where more than one regulator governed a single project – with one providing market access and another controlling prices. “Concurrent jurisdiction can lead to forum shopping to get the best deal. So, should concurrent jurisdiction be resolved before construction of infrastructure commences?” he asked.
Crompton said the publication of the draft Infrastructure Development Bill, which will empower the Presidential Infrastructure Coordinating Commission to determine and develop infrastructure priorities, designate Strategic Infrastructure Projects (Sips) and ensure that infrastructure development in respect of any of the Sips is given priority in planning, approval and implementation, showed that policy makers were aware of many of the issues. However, he said, in his opinion, this was poorly drafted and did not focus on the right issues.