| Work Detail |
South African municipalities will need a clean balance sheet if they want to stay in the business of selling electricity
Municipal debt, electricity distribution industry reform, wheeling and costing of electricity tariffs at municipalities dominated the opening of the Association of Municipal Electricity Users Convention in Mbombela Municipality today (Monday 21 October).
Outgoing AMEU President Nndwamato Tom Mutshidza said the convention theme of the future-proofing of municipalities as utility business in South Africa is a loaded statement that invites much discussion.
“As we convene here, we convene at a point in our history and our country where the sector we are in, is undergoing serious reform,” he reminded.
Mutshidza decried the focus of the Presidency on the top 20 municipalities and current National Treasury moves to reform local governance structures as too heavily centred on the eight big metro municipalities, calling it a “continuation of the old spatial planning that is biased towards ensuring the cities must be the focus.”
He was encouraged though by the potential of reforms such as evidence-based planning and incentive-based grants and lauded the South African Local Government Association (SALGA) for keeping an emphasis on integrated reform of the entire electricity distribution industry (EDI).
Municipalities are no longer able to meet their obligation to Eskom
ERA stalled and municipal debt
Mutshidza said the AMEU, together with SALGA, had petitioned the president of South Africa not to enact the ERA amendment just yet until the definition of reticulation was better defined. The two associations questioned the constitutionality of certain aspects of this definition.
Getting back to the entirety of the municipal EDI though, Mutshidza said it would be remiss of him “not to talk about the continuing non-responsiveness of us when it comes to the debt that we find ourselves, to Eskom.”
“We see the municipal debt continue to rise, threatening the existence of Eskom,” said Mutshidza.
He pointed out that the municipalities under debt relief though seem to be in an even worse position that before.
The inability of most of the municipalities to submit proposed tariff increases based on a Cost of Supply Study should be, according to Mutshidza, chalked up to a lack of capacity and resources at the local level. He asked that the powers that be ensure that these resources are made available so municipalities could “remove themselves from the quagmire they find themselves in.”
Mutshidza said municipalities are keenly aware that if they do not attend to infrastructure maintenance backlogs the electricity distribution sector faces a crisis on par with loadshedding.Unbundling of Eskom underway
Welile Mkhize, Acting Executive Manager for Regulation at the National Energy Regulator of South Africa (Nersa), said the unbundling of Eskom has set the country’s energy sector on a path that transforms the whole value chain of electricity delivery.
Now that the National Transmission Company of South Africa (NTCSA) has been issued three licences (for transmission; import and export of electricity; and trading of energy) it is operating in a limited way until the Electricity Regulation Act is fully enacted.
The Transmission System Market Operator will eventually be an independent body, but for now the NTCSA is very intertwined with Eskom.
Both Eskom and municipalities will play a role as distributor of electricity in the future, but Mkize said the exact nature of the municipality of tomorrow has not yet been established.
We definitely cannot continue on this trajectory
Nersa awaits with keen interest to hear what the requirements will be for municipalities to participate in the electricity market that will be governed by the Market Operator.
Mkhize did emphasise though that Nersa saw the amendments to the ERA as “efforts to enhance energy security.”
“Through the ERA, the ESI (electricity supply industry) will transform to a system where many participants are participating.”
South African municipalities need to change their entire business model
He explained the South African municipalities are responsible for 60% of the country’s electricity distribution systems and were well behind the development curve of other countries who opened their energy markets to trading.
“The current business model, based on municipalities buying electricity in bulk is unsustainable.”
“Other business opportunities for municipalities are needed in order to enhance revenues as well as ensure the sustainability of the municipalities. Just talking business models, the current funding models and revenue generations models are also unstainable.
“The symptom of unsustainability is showing up as a growing municipal debt.
“Municipalities are no longer able to meet their obligation to Eskom.”
“When the industry becomes a market, everyone is going to have to buy electricity from the market in order to distribute or sell it to their customer. That is the trading business, that is how it works wherever markets are involved,” explained Mkhize.
“When Eskom provides electricity to municipalities it is a sort of debt and then municipalities have to pay back [for the electricity]. When this market is introduced, this will flip the whole process on its head… where, if the distributor wants electricity, then upfront it needs the balance sheet and wherewithal to buy electricity on behalf of its customer.”
“So, reforms are important to ensure municipalities will be able to participate in this future market.
“Municipalities collectively owe about R78 billion and much of this is irrecoverable. We definitely cannot continue on this trajectory,” said Mkhize. ESI |
