In one of the most controversial decisions of the year, an announcement was made by National Government in early December 2010 that the restructuring of electricity distribution will be stopped immediately.
The decision by the Cabinet in December to scrap the RED’s followed a resolution at the ANC’s national general council in September. That resolution called for electricity distribution to remain in the hands of the Municipalities.
The ambitious 13-year plan to establish semi-autonomous state-owned Regional Electricity Distributors collapsed in early December.
In its statement released on the 9 December 2010, Cabinet stated that:
“Cabinet decided to terminate the electricity distribution restructuring and to discontinue the process of creating the Regional Distributors (REDs) with immediate effect. Although EDI Holdings (EDI) had made significant progress in establishing the RED’s, Cabinet approved the recommendation that the Department of Energy (DOE) take over programmes previously executed under the EDI Holdings mandate. The Department will review the whole electricity value chain with a view to developing a holistic approach to revitalize the electricity infrastructure, energy security as well as financial implications. An Administrator will be appointed to attend to the winding up of EDI Holdings. The Board will remain accountable until the end of the 2010/2011 financial year. “
The announcement comes shortly after the CEO of the EDI Holdings Company; Phindile Nzimande addressed delegates at IMATU’s fourth Congress on the operations of the EDI.
As expected, no hint was made by her then that Cabinet will announce the termination of the restructuring process.
Nzimande published the following statement on the EDI website after Cabinet’s announcement:
“On behalf of the Board, the management and staff of EDI Holdings we welcome the Cabinet decision as we have taken the Electricity Distribution Industry Restructuring (EDIR) process as far as we could and we remain committed to ensuring that the invaluable work done by EDI Holdings to improve the efficiencies and to make the industry viable so that the industry can meaningfully contribute to sustainable social and economic development, are put to good use for both industry and the country.”
EDI’s short lived history
Electricity distribution performance was initially raised during the first term of former President Thabo Mbeki. National Government, at that stage committed to certain poverty alleviation and job creation goals for the year 2014.
The National Government’s concern was that Municipalities were not utilising the income derived from electricity distribution for electrification purposes and that too many households were still without electricity.
It said that electricity distribution was “dysfunctional and existed without coordination.”
ESKOM held the responsibility for electricity distribution in some areas whilst Municipalities were responsible for the same function in other areas. These areas of jurisdiction overlapped in many instances. The argument was also raised that ESKOM and Municipalities rendered electricity distribution services at different rates; prejudicial to consumers and no uniform billing structure existed. Government’s opinion was that ESKOM should concentrate on the generation and transmission of electricity rather than distribution.
National Government decided that six wall to wall Regional Electricity Distributors (RED’s) should be established in order to address its poverty alleviation and job creation goals.
This would have the effect of removing electricity reticulation, a Constitutional responsibility of Municipalities from the scope and ambit of a Municipal service. Municipalities were no longer constitutionally responsible for the supply of a Municipal electricity distribution service.
In order to create the RED’s as national electricity distribution entities, staff assets and resources had to be transferred from ESKOM and the municipalities to the RED’s.
IMATU’s warning to National Government
A number of potentially serious pitfalls were identified and communicated to working groups during the restructuring process and IMATU discussed the following aspects of the proposed restructuring at National Congress in October 2010;
- The impact on the institutional structure of Municipalities as an independent sphere of government if the current revenue from electricity distribution does not form part of the municipal budget and is to be collected by the RED’s.
- The impact on the structure of municipalities as separate spheres of government if Municipalities are forced to participate in RED’s.
- The status of Municipalities who wish to continue with electricity distribution functions since no legal agreement and / or constitutional amendment which prohibit municipalities from rendering an electricity distribution service has been formalised.
- The impact and ability of Municipalities to render other constitutionally imposed Municipal services if the revenue derived from electricity distribution is lost.
- The ability of municipalities to retain, remunerate and offer other benefits to the employees who will not be transferred to the RED’s
- The job security and continued employment of the employees who will be transferred to the RED’s
The transitional state-owned EDI Holdings had to cross-subsidise funds from stronger to weaker RED’s for five years.
These plans are now placed on the back burner as it was announced that the Department of Energy, assisted by the Department of Co-operative Governance and Traditional Affairs (CGTA), will drive the rehabilitation programme of the electricity redistribution network in the 284 municipalities.
A new plan for old problems
A “special purpose vehicle” will be established by the Co-operative Governance Department to accelerate and improve the provision of municipal infrastructure, which will include electricity supply and management.
The special purpose vehicle had not yet been defined, but it was widely speculated that it would have to be spelt out in a draft Bill.
“It could take the form of a company with public and private sector involvement”, were some of the comments made in the media recently.
The spokesman for the Department of Energy, Bheki Khumalo, said the “special purpose vehicle” would target all infrastructure, “not only” electricity, and would be directed at failing municipalities.
The Department of Energy, however, will be the principal department to police the maintenance and upgrade of the electricity infrastructure.
Originally, plans were made to have six RED’s. Only one, RED1 was partially formed in the Western Cape. IMATU repeatedly said the establishment of RED1 had “put the cart before the horse” as the legislative basis for the system was never put in place.
Buyelwa Sonjica, the then Energy Minister, said in March that the EDI restructuring model was costing the country up to R8bn a year and the distribution maintenance and refurbishment backlog “was amounting to about R27bn”.
EDI’s CEO Phindile Nzimande in November said to reporters that EDI Holdings’ plan to wipe out the maintenance backlog had not been implemented because of a lack of funds. “A 10-year plan to improve municipal infrastructure was due for implementation in 12 municipalities during May this year, but the necessary funding had not been provided”, she said to reporters.
CGTA said that the special purpose vehicle would help poor municipalities with infrastructure planning and in turn, “mobilization of private sector funding will be accelerated.”
The plan includes the establishment of a bulk infrastructure fund which aims to ring-fence dedicated funding to address bulk infrastructure backlogs in Municipalities.
IMATU demands good corporate governance.
Corruption in all its formats should be urgently addressed.
IMATU has always been outspoken about the fact that corruption has contributed to the current chaos in the state of disrepair of electricity distribution infrastructure, the lack of maintenance of electricity distribution assets and the inability of Municipalities to invest any meaningful amount of capital expenditure on electricity distribution.
“The root of this evil lies in the fraud, theft, corruption and other criminal activities in tender processes, procurement fraud, supply chain management, theft and fraud and a total lack of accountability during such processes”, said the General Secretary of IMATU, Johan Koen.
IMATU is of the opinion that a special purpose vehicle operating under the auspices of Department of Energy and CGTA will not solve this problem.
Any meaningful results in improving electrification will only become visible if corruption in all its forms is rooted from society.
Unless the political will and leadership amongst the governing party exists to address corruption, no improvement in electrification of the country will be achieved. Corruption must be addressed on a policy, legislative and administrative level across all spheres of Government.
This problem is worsened by the fact that our IMATU members are not offered any protection in making protected disclosures in disclosing corruption. Members are victimized, harassed and dismissed when they disclose corruption. This creates a situation where they rather turn a blind eye towards exposing corruption rather than risk their livelihood.
IMATU is of the opinion that the proposed special purpose vehicle to address service delivery under the auspices of CGTA should rather be geared towards addressing corruption. This will inevitably result in improved service delivery of all Municipal services. Corruption can not be addressed in all spheres of Government if the bodies which should eradicate corruption, are controlled by the state.
The institutions designed to protect our democracy as envisaged in Chapter Nine of the South African Constitution Act 108 of 1996 are total and dismal failures in addressing corruption. The absurd report published by the Public Protector in respect of corruption in Municipalities in the Limpopo Province demonstrates the serious flaws of these institutions to combat corruption. IMATU is of the opinion that this is due to the current Government’s doctrine of “cadre deployment” in all its institutions and public entities.
If this so called special purpose vehicle is to be controlled by cadres deployed from the highest echelons of Government, such a “vehicle” will be doomed even before its creation. There is a general lack of accountability, absence of management and proper operation under a climate of no transparency in our Government sectors.
EDI disguised in another form?
IMATU is also concerned that this so called special purpose vehicle will be created as a corporate entity registered under South African corporate laws.
If established, it will be EDI Holdings Company or RED under another disguise which will inevitable have teething problems at the expense of tax payers.
IMATU is aware of the fact that there will be private sector involvement resulting in partnerships and / or stakeholders in such an entity.
This is nothing else than privatisation. Previous attempts to privatise Municipal services were dismal failures. IMATU is certain that service delivery as a whole will be adversely affected if private entities are allowed public partnerships. These entities only aim to achieve maximum profit for its shareholders at the detriment of service delivery.
IMATU will secure its members’ interests
IMATU’s members were during the existence of the EDI Holdings Company and the RED’s extremely troubled by their future employment security.
On behalf of our members, IMATU demands from National Government to once and for all pronounce them as to where all employees performing any direct or indirect function relating to electricity distribution in any Municipality belong; in or out of the jurisdiction of the SALGBC?
This is in IMATU’s opinion a primary requirement for improved service delivery. Any employee and all IMATU members who are constantly bombarded with uncertainty as to their continued employment can not operate in an environment where service delivery is improved.
These aspects need to be pronounced upon by National Government before there will be an improvement in all service delivery in the Municipal environment.
IMATU’s members demand transparency from National Government before it embarks on another experiment with electricity distribution and service delivery to the community.
“We also demand an explanation from Government regarding the wasted expenditure that has since been incurred. R 8 billion per year could have been invested in what the public demand- proper corporate governance and service delivery”, said Johan Koen.