By Ndaba Dlamini

Once the Joburg Regional Electricity Distributor is set up, it is expected that money for distributing power will accrue to the City through a new ‘transparent' electricity levy or surcharge mechanism.

The long-awaited restructuring of the electricity distribution industry will result in the present distribution operations of City Power, the City's electricity provider, and Eskom, the national distributor, merging to create a single electricity distributing company, the Joburg Regional Electricity Distributor.

This was revealed during a Gauteng electricity distribution industry restructuring summit in Boksburg, Ekurhuleni on Thursday, 24 April. The summit was held to inform various stakeholders on the progress that had been made and assess the readiness of provincial municipalities to establish the regional electricity distributors (REDs).

Deputy Minister of Minerals and Energy Lulu Xingwana; the Gauteng MEC for local government, Qedani Mahlangu; the Tshwane mayor, Gwen Ramokgopa; and members of the Johannesburg and Ekurhuleni mayoral committees attended the summit.

It was also aimed at ensuring the roll-out of RED Two (Ekurhuleni), RED Four (Johannesburg) and RED Six (Tshwane). Three other REDs approved by EDI Holdings, a company formed to manage and facilitate the reformation of electricity distribution, are Cape Town (RED One), Nelson Mandela (RED Three) and eThekwini (RED Five).

"In December 2003, the EDI Holdings board approved the six REDs' boundaries," Mahlangu said. "The six wall-to-wall REDs, as they are commonly known, were restructured to merge the numerous municipal electricity undertakings with Eskom distribution into six viable regional electricity companies, of which the three Gauteng metros are part."

Joburg's member of the mayoral committee for infrastructure and services, Roslynn Greeff, said the City was more than ready to establish the Johannesburg RED. A number of meetings with stakeholders had been held and a strategy was already in place to set it up.

"The process will improve the City of Johannesburg's integrated development process and commence the process to equitable electricity tariffs for all residents," she said.

The changes to the system were also meant to meet electricity targets, contain costs and keep electricity affordable for low-income households. Most importantly, the move would ensure quality of service and supply, she added.

An offshoot of a 2005 cabinet decision, the Joburg Regional Electricity Distributor will form part of six Metro REDs and a National RED. The Metro REDs will be anchored in the country's metropolitan areas while the National RED will be based primarily on Eskom's distribution operations outside the metro areas.

The cabinet envisaged that the metro REDs would be established soon after the local government elections earlier this year, and the National RED would be formed by June 2007. The first RED began operating in Cape Town on 1 July 2005. Mahlangu hoped that the other municipalities "will draw best practises and learn lessons" from Cape Town.

Xingwana said a lot still remained to be done because some municipalities were lagging behind. She called for partnerships between various stakeholders in the implementation of the restructuring.

"We appeal to the political, bureaucratic and other structures to hold hands with us as we facilitate and provide services to our communities, especially to the indigent. Partnership is indeed a critical success factor if we are to succeed in restructuring the electricity distribution industry and making it viable," she said.

The intention to restructure the industry was initially spelt out in the 1998 Energy White Paper and further detailed in the 2001 blueprint on electricity distribution industry restructuring. In this blueprint, the government proposed the establishment of six REDs covering the whole country, of which Joburg would form an important part of RED Four. It would cover parts of Gauteng, Free State and North-West.

In 2003 EDI Holdings was set up as an agent of the Department of Minerals and Energy to facilitate the restructuring of the industry, with the first RED beginning operations on 1 July 2005.

However, a number of shortcomings led to the national government and industry stakeholders shelving the idea in 2005. These were a lack of legislative alignment with Constitutional provisions, which define electricity reticulation as a local government competency, and municipal legislation (the Municipal Systems Act and the Municipal Finance Management Act) passed after the approval of the electricity distribution industry blueprint.

Realising the importance of reforming the industry, the cabinet returned to the drawing board. It came up with a new model focussing on the creation of six Metro REDs and one National RED. Thereafter an inter-ministerial committee, made up of various government departments, was established to deal with issues and concerns pertaining to the viability of the restructuring.

The committee is expected to report its findings to the cabinet this year, following which more detailed frameworks, including a valuation and compensation framework, will be developed, with particular focus on the National RED, by June.

To facilitate and speed up the restructuring of the industry and the formation of the REDs, certain legislative measures will be put in place – the Electricity Regulation Bill, approved by parliament in late 2005 but yet to be signed into force, and an envisaged Electricity Distribution Industry Restructuring Bill, presently being prepared by the Department of Minerals and Energy.

The latter legislation is expected to define "transfer schemes" and will include provisions to define "reticulation" as referred to in the Constitution to provide clarity on the responsibilities of local authorities and the implications of RED formation and operation.

Greeff said that through City Power, Johannesburg, anticipating the restructuring of the industry and the formation of Jored, had appointed a consultant to assist and advise City Power and the City on its participation in the restructuring.

According to the City's contract management unit, the restructuring has policy implications for Joburg and City Power. Following the formation of Jored, Eskom's assets and operations within the city contract area will be transferred to the new electricity distributor.

Regarding the Joburg Regional Electricity Distributor, the City has two options: one takes City Power as the basis for the creation of the distributor; two envisages a new legal entity being created, with the transfer of City Power and Eskom assets and operations into the new entity.

According to the City, there are "considerable merits" to choosing the first option. The use of City Power would provide continuity and avoid disruptive transfer of business, staff and operations to a new entity. It would also enhance the City's control of the distributor.

Once the Joburg Regional Electricity Distributor is set up, it is expected that revenue derived from electricity distribution operations will accrue to the City through a new "transparent" electricity levy or surcharge mechanism. The principles of the mechanism are being developed by the national Treasury, in consultation with the Department of Minerals and Energy and other stakeholders.

Revenue due to the City will be collected by the Joburg Regional Electricity Distributor as a levy on electricity sales and transferred to the City under an agreement between the two parties, according to the unit.

Mongezi Ntsokolo, the director of distribution at Eskom, said there would be no transfers of assets and human resources between Eskom and municipal entities prior to a cabinet decision on the governance and business model of the National RED, expected later this year.

"However, Eskom will not be a shareholder in any of the REDs established, and transfer agreements will be negotiated with each individual metro since we believe each metro is unique," Ntsokolo explained.

The date the Joburg Regional Electricity Distributor and the other four REDs would be set up, however, would remain "unclear" until the inter-ministerial committee had completed its findings and given its recommendations on the electricity reform process.

In closing Dolly Mokgatle, the chairperson of the EDI Holdings board, urged the five metros to move with a sense of urgency.

"We are all intent on meeting the deadline set by the cabinet and I urge the remaining five metros to follow in the steps of Cape Town in setting up the REDs and to achieve the cabinet's mandate," she said.

Source: Johannesburg News Agency