THE
PORTFOLIO COMMITTEE ON MINERALS AND ENERGY HAVING HELD PUBLIC HEARINGS ON 21
AND 23 JUNE 2006 ON THE VIABILITY OF ESTABLISHING A NATIONAL RED/7TH
RED, REPORTS AS FOLLOWS:
The Committee undertook to hold
hearings on exploring stakeholders, interested and affected parties views on
the viability of establishing a National RED/7th RED as opposed to
the existing Six RED model. The hearings were held on 21 and 23 June
respectively. The objectives of the public hearing process were to:
·
provide an open platform for discourse around the REDs,
·
solicit suggestions on how to fast-track the REDs process,
·
gauge stakeholder sentiments around the REDs in general and
more particularly the National RED,
·
understand the challenges associated with the formation of
the REDs, and
·
formulate an approach, which, is inclusive of stakeholder
preferences.
The following organisations
attended the hearings and made input on the subject:
The remainder of organisations
listed below forwarded their written comments:
Cosatu supports the 6 wall-to-wall REDs.
However, it believes that all the REDs must be under the control of one
national holding company to ensure equal distribution of resources all over the
country and to allow for cross subsidisation.
Solidarity believes that the National RED
can meet the objectives of the government if properly modelled.
In general
business is happy with any model provided large customers are exempted from
buying from the REDs, i.e. that key industrial customers buy electricity
directly from Eskom Transmission and are serviced by Eskom, mainly for safety
(mining houses), pricing and good quality of supply and service (productivity
and competitiveness in export markets).
Currently customers consuming more than 100 GWh per annum can buy at
wholesale price.
In this
regard, the Metros argue strongly that key industrial consumers within their
jurisdictions should remain with the Metro REDs.
Secondary and District Municipalities
(UMhlathuze, South Central Karoo, Centlec (Mangaung))
These
municipalities support the sub-regional REDs, especially those that are in
existence and have proven to be sustainable.
SALGA
Local
government, represented by SALGA seems to support the establishment of 6
wall-to-wall REDs while acknowledging that municipalities cannot be treated the
same. They do recognise the need for
cross-subsidisation. This statement
means that SALGA supports the 6 wall-to- wall REDs including clustering.
If a
decision is to go the National and Metro REDs route, SALGA supports the concept
of Sub-Regional REDs as favoured by the above secondary municipalities.
SALGA
supports the governance of the REDs under the municipal entities.
Organizations
such as AMEU and the NERSA believe that the 6 wall-to-wall REDs were properly
modelled and there is justification for the demarcation. They emphasized that
the EDI is sustainable on its own and does not need external financial support,
therefore the restructuring should ensure that balance is maintained.
They also
believe that the REDs as Public Entities will be easily Regulated by NERSA and
the existing National Cross-subsidisation Framework could be maintained to help
uplifting rural areas, as part of the objectives of EDI restructuring without
much fiscal support.
They
believe that the National RED will not be viable and it will create challenges
of financial viability, sustainability and management going forward.
In
general, most participants were in favour of the 6 wall-to-wall REDs as per the
Blueprint. Metros support the Metro REDs with a National RED on condition
that customers within the Metros
do not cross-subsidise the National RED.
It should be noted that
the electricity distribution business is most viable around the Metros and
large cities.
The
6 wall-to-wall approach requires cross-subsidization within customer categories
at a larger scale even outside the
Metro boundaries, thus minimising the need for fiscal intervention in the EDI.
This model lends itself to easy Regulation by NERSA and governance if REDs are Public Entities.
The
Metro and National RED model places Metros in a poor financial position due to having to cross-subsidize the
previously disadvantaged areas, thus creating the imbalance the Blueprint seeks to address. The
governance of the National RED poses a challenge due to its multi-jurisdictional nature, which would lead to further
constitutional challenges.
5. Conclusion and Way forward
1.
the lack of convincing argument for establishing the National RED/7th
RED emanating from the hearings in
particular the fact that almost none of the positions put forward could sustain the argument around the
financial viability of a National RED/7th RED; and
2.
to eliminate any further delays in the restructuring process by introducing new
models, spending time and financial resources
on it , but to rather commit to ensuring that the 6 RED Model is operational.
·
In advancing the restructuring agenda and promoting the 6
RED Model, the Committee recommends, that concerted efforts by the relevant
decision-makers be made to speed up the process, that collaboration amongst the
Department of Provincial and Local Government, National Treasury, Department of
Minerals and Energy and the Department of Public Enterprises takes place to
ensure that the long, unresolved challenges hampering the successful
implementation of the 6 REDs Model is addressed with urgency.
·
The Committee noted with concern the number of inputs which
called for legislative and policy direction to drive the restructuring of the
electricity distribution industry. The Committee recommends that the Department
of Minerals and Energy speed up legislation in order to accelerate with change
in the industry.
·
The Committee recommends that National Treasury finalise the
process of providing clear policy guidelines with regard to the transfer of
assets from Eskom to the municipalities.
·
The Committee recommends that The Department of Minerals and
Energy provides clarity with regard to the definitive problems with
“reticulation”, “competition and contestable customers.”
The Committee remains steadfast in
its commitment to ensure an accelerated REDs creation process and that all
transformation processes remain informed by the needs of our country and its
people.
Report to be Considered