^{CHAMBER OF MINES OF SOUTH AFRICA}

15 June 2006

COMMENT BY THE CHAMBER OF MINES ON THE VIABILITY OF THE ESTABLISHMENT OF A NATIONAL/7^TH REGIONAL ELECTRICITY DISTRIBUTOR

Introduction

The Chamber of Mines appreciates the invitation from the Portfolio Committee on Minerals and Energy to submit comment on the viability of the proposed National/7^th regional electricity distributor.

It is understood that the current intention is to establish 6 regional electricity distributors around the 6 metropolitan municipalities namely Johannesburg, Tshwane, Ekurhuleni, Cape Town, Nelson Mandela and eThekwini with a 7^th national distributor covering the rest of the country.

It is further understood that concerns have been expressed concerning the 7^th national distributor vis-à-vis provincial strategies.

Background

The fragmented state of the South African electricity distribution industry has been a cause for concern since the early 1990s. It was identified as the reason for the lack of progress in electrification, the numerous disparate tariffs and the poor quality of supply. In addition it had become clear that many municipalities were using electricity sales to augment their incomes with tariffs that exceeded the cost of supply by far.

Following an extensive consultation process consensus emerged that the solution to the problem was the restructuring of the electricity distribution industry into a small number of regional electricity distributors. This was expressed as a policy position in the ERIC Report of 1997, the 1998 White Pater on Energy Policy and the Blueprint Report of 2001.

To date the policy has, however, not yet been translated into the legal framework required for the restructuring of the electricity distribution industry. As a result the current initiatives appear to be based on negotiations between the parties involved.

This is creating uncertainty regarding the conditions of electricity supply which is not helpful when considering investment decisions, especially in sectors characterised by long-term projects, such as the mining industry.

The 7^th National Electricity Distributor

The Chamber of Mines has on a number of occasions expressed support for the restructuring of the electricity supply industry as it was of the view that the creation of financially viable regional electricity distributors would relieve the prevailing chaotic conditions in the electricity distribution sector. This view is still valid.

The current intention to establish 6 regional electricity distributors around the 6 metropolitan municipalities will leave electricity distribution in those areas not included in these distributors under the jurisdiction of the district/local municipalities concerned. Such a situation will negate the objective of the electricity distribution industry restructuring.

The Chamber accordingly supports the establishment of the 7^th national electricity distributor provided that

· It is a financially viable entity delivering a technically competent service on a commercial basis within the constraints of a system of cost-reflective tariffs.

· Large industrial customers, i.e. those consuming in excess of 100GW of electricity per year, are allowed a choice of electricity supplier.

The Chamber is of the view that a correctly structured 7^th national electricity distributor can be financially and technically viable.

Recommendation

The Chamber of Mines recommends that:

• The modelling to assess the financial viability of the 7^th national distributor be completed and made available to stakeholders without delay.

• The legal framework required for the restructuring of the electricity distribution industry be established as a matter of urgency.

DAK/red7 comment to ppcme 2006-06-15