Brian Day, chair of the South African Independent Power Producers Association (SAIPPA), says the failure to promulgate the Electricity Regulation Amendment Act three months after its signing by President Cyril Ramaphosa raises worrying questions about the electricity reform process.
“I’m deeply concerned by the delay because it’s a symptom of a piecemeal approach to the restructuring of the electricity supply industry that we have suffered from for decades.”
The act, which was passed by parliament after 42 months in the making, established an independent transmission entity, the National Transmission Company of South Africa (NTCSA), but failed to deal with the more challenging issue of distribution. This has led to a backlash by the South African Local Government Association (Salga), which it is feared could indefinitely stall implementation of the act and creation of a competitive wholesale electricity market.
“A number of people in the know have been saying for a while that you can’t just talk about separating transmission. Distribution is the elephant in the room that has not been addressed, and that is what is coming home now,” says Day. “There’s a whole lot of complexity around the distribution industry, which is not part of the current act at all.”
The act tried to undo an “inadvertent error” in the constitution that delegates the reticulation (distribution and trading) of electricity to local government level. “And, of course, municipalities have jumped on that because they’re in an absolute funding crisis.”
[Nersa's] capacity to play a regulatory role in a fast-maturing environment needs to be very different from what it was in the past. They need a completely different way of thinking
— Brian Day, chair of SAIPPA
Myriad issues now have to be addressed around distribution, which was never supposed to be part of the act at all. “It should have been dealt with long ago. The fact that it still hasn’t been is a symptom of piecemeal planning.”
Day says the thinking seems to have been: “Let’s unbundle transmission but ignore distribution, which is a lot more complex because it goes to the funding model of municipalities: whether that should be directly funded from the fiscus, whether they should run their three main supply businesses — water, electricity and municipal waste — completely differently, and so on.
“There’s a whole quagmire that has to be resolved, but the act should not be delayed because of something that is actually off-topic.”
Getting the new electricity system up and running is “absolutely an existential issue” for the country, he says.
“National Treasury is doing a lot of work on actually what should be done, so the guys are hard at work on it. But we should have done all this a decade or two ago.”
Meanwhile he agrees that the more recent failure of the Treasury, along with electricity & energy minister Kgosientsho Ramokgopa, Operation Vulindlela and the national energy crisis committee, to deal properly with distribution made the current stalling of the reform process inevitable.
“That’s the tragedy. Perhaps they should never even have mentioned the word ‘reticulation’. Why did that have to be part of this act at all?”
He says it was added in after the public participation process by the portfolio committee, right at the end of the bill’s passage through parliament.
“It was completely unexpected. Somebody suddenly said, ‘Oh, you need to do this as well.’ They didn’t think it through, didn’t understand the far-reaching consequences, and now the whole act gets hung up because of it.”
What about the arguments of Salga and the Association of Municipal Electricity Utilities (AMEU) that municipalities depend for their financial survival on distributing electricity to large power users?
“It goes back to the effective management of municipalities, which of course is probably an even bigger existential crisis for the country. Municipalities should be managed properly.”
This is why he supports the idea of contracting out services. Mfube municipality in the Free State, which has achieved a high level of performance after getting a private sector entity to do its electricity distribution for it, is a case study of how well, and profitably, this works, he says.
“Instead of municipalities fighting against an advancement in the restructuring of the electricity supply industry, they should just do their job properly. But they’re not thinking rationally from a business point of view. They’re stuck in the old model that they just want to protect at all costs.”
Day is critical of Salga and AMEU because they want to protect municipalities’ rights but don’t get together and lead.
“They could come up with frameworks copied from Cape Town or Brazil or India or, heaven forbid, some country in Europe, and set it out as a proposal for municipalities to adopt, but they’re scared to be seen as imposing solutions on them.”
The National Energy Regulator of South Africa (Nersa) should also be doing more as a regulator to be a “catalyst for progress” by implementing curtailment rules to make more space available on the grid for independent power producers.
“Nersa are just sitting on that curtailment rule,” says Day. “Between the NTCSA and business great work has been done, and Nersa sit on their hands. They don’t disagree with what is proposed, they don’t come back and discuss it, they just do nothing. And until they approve it nothing can move forward. So perhaps Nersa is the biggest problem.
“Their capacity to play a regulatory role in a fast-maturing environment needs to be very different from what it was in the past. They need a completely different way of thinking. It can’t be the old guard, who grew up in a vertically integrated monopoly.”
He blames the obstructive approach of Salga and the municipalities to reform on the political ideology of Gwede Mantashe’s time as mineral resources & energy minister “when anything that came from the West or North was very bad, and people just didn’t want to do the things that worked elsewhere in the world”.
Meanwhile, a way must be found to deal with the municipal issue separately from the Electricity Regulation Amendment Act, Day says.
“We need that to go forward. And in parallel, at the same time, with due urgency and depth, deal with the municipal distribution crisis.
“Between the clever lawyers and politicians they need to find a way ... because the legal framework for the unbundling of Eskom, which is essentially the purpose of the act, is absolutely crucial.
“You can’t just not promulgate the new act. It’s a matter of extreme urgency.”
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