Minister Dr Zweli Mkhize

Speech by Minister Zweli Mkhize at the Association of Municipal Electricity Utilities’ 26TH Technical Convention

Keynote address by Hon Dr Zweli Mkhize, Minister of Cooperative Governance and Traditional Affairs to the Association of Municipal Electricity Utilities (AMEU) 26TH Technical Convention

CSIR Convention Centre in Pretoria, Pretoria

08 October 2018

 

The President of the Association of Municipal Electricity Utilities (AMEU) Mr Moferefere Tshabi Tshabalala, and the leadership of AMEU present,

The Executive Mayor of Tshwane, Cllr Solly Msimanga,

The electricity supply industry representatives and the broader Energy fraternity,

Delegates from SADC sister countries,

Distinguished delegates and members of AMEU,

Ladies and gentlemen,

Thank you for the opportunity to address this important event, the AMEU Technical Convention.

 

Energy is the engine of economic growth and development. Development is impossible without energy.  Our industries, government departments, households, streets, hospitals and schools need energy to keep running. You are engaged in the important business of supplying this important resource.

 

This convention takes place in a country at work to mitigate the difficult economic difficulties, led by President Ramaphosa. We have just emerged from the Presidential Jobs Summit at which social partners committed to working together to create much-needed jobs for our people. The Summit has generated much optimism within government, business, labour and the community sector.

The President also recently announced an economic stimulus and recovery plan, which included the establishment of the South Africa Infrastructure Fund.

 

Government’s contribution to the Infrastructure Fund will be in excess of R400 billion over the next three years, with additional sources being sought from the private sector. The Plan also includes investment in municipal social infrastructure improvement which includes basic services such as water, electricity and sanitation.

The National Development Plan stipulates that South Africa’s energy sector will promote economic growth and development, social equity and environmental sustainability.

The National Planning Commission Discussion Paper on Energy, released in February this year, mentions two notable changes in the energy sector since the adoption of the NDP in 2012.

The first is South Africa’s commitment to the Nationally Determined Contribution as part of the Paris Agreement, emanating from COP21 in 2015. The second is the huge cost reduction in the cost of power generation technologies in the electricity sector.

 

 

 

Both of these have an impact on future investments in the energy sector as we seek to reduce our greenhouse gas emissions and work towards changing the primary means of delivering energy. South Africa was praised for her role in the conclusion of the Paris Agreement on Climate Change and our late Minister of Environmental Affairs Ms Edna Molewa played a key role in this regard. As we deliberate, we once again pay tribute to her and commit to taking her work forward in building a more sustainable environment.

The future of the generation, transmission and distribution of energy is changing rapidly and it is vital that municipalities keep track and stay ahead.

The NPC Discussion paper makes a number of proposals with regard to the role of coal, natural gas, renewable energy and electricity, while the Integrated National Electrification Programme identifies a need for a shift from on-grid electrification to off-grid electrification.

Government wants to provide all citizens with access to basic services. This will mean that all forms of energy generation should be employed.  This includes traditional coal-fired generation plants through to hydro plants, solar farms, wind turbines and small embedded generation.

One hundred and eighty-eight (188) municipalities are licensed through NERSA (National Electricity Regulator of South Africa) to distribute electricity to consumers. Already this space occupied by Local Municipalities is becoming more complex as other forms of electricity generation are becoming effective. Renewable energy is changing the face of the energy game and municipalities are responding, simply to provide affordable services to citizens.

Renewable energy is also providing other opportunities in the energy sector in municipalities. Solar farms are being erected within the borders of a municipality and could be fed into the municipal network as part of the generation and transmission combination. This challenge will have to be managed well so that the total effect on the national grid is not compromised.

Businesses and households are installing solar arrays on their rooftops. This will no doubt have a negative impact on municipal revenue generation. Municipalities will need to find a role to play in this new development and ensure that the installations comply to safety standards and the quality of the generated energy should be equal to that received from Eskom. They would also need to ensure that when this energy is fed back into the grid, the correct metering and accounting is in place to accommodate this embedded energy.

COGTA has adopted Local Economic Development as the sixth pillar of the Back to Basics programme. Working with the Department of Trade and Industry, we have proposed an improved alignment between national economic investments such as Special Economic Zones, Industrial Development Zones or Industrial Parks and the poverty stricken municipalities in order to stimulate growth and employment and improve revenue generation.

It is therefore vital that municipalities also identify and embark upon programmes in the Renewable Energy sector to stimulate LED. A deliberate and targeted investment in township and rural economies needs to be planned meticulously towards this end. There are huge opportunities for the future.

The question of revenue generation remains pivotal for municipalities to ensure sustainability and the provision of services in an efficient, seamless and reliable manner. Electricity is one of the major sources of revenue for municipalities. In recent years that revenue source has seen a decline in municipal profit margins due to higher cost of bulk electricity.

 

 

In addition to this, over the past few years, municipal debt has been increasing at an alarming rate. A major financial problem is ensuing in many municipalities in the country due to inadequate collection of revenue as a result of the runway non-payment for municipal services. The level of municipal debt is growing on a monthly basis from all the categories, namely organs of state, business and households.

 

National government departments were as at March 2018 owing municipalities R3.2 billion. Aggregate municipal consumer debts were R143,6 billion as at 30 September 2017. The largest component relates to households which accounts for 70.8 percent or R101,6 billion followed by commercial or business for 16.8% or R24,1 billion and other category of debtors for 6.7% or R9.6 billion.

 

Municipalities are also experiencing cash flow problems which have resulted in them defaulting on their bulk electricity account with Eskom. As at the 31st of May 2018, the total overdue debt was over R14 billion. I met with the Mayors and municipal managers of the top ten defaulting municipalities in June and we asked them to brief us on the challenges they face so that we could work on solutions together.

These include the widespread “culture’’ of non-payment by consumers. The ageing infrastructure results in high electricity and water losses and as create opportunities for illegal connection. Maintenance and refurbishment backlogs need to be attended to and the announcement by the President of a dedicated focus on infrastructure is an important intervention.

 

Other challenges include unfunded budgets where the operating expenditure is greater than revenue. Poverty is another biggest reason for the low collection rates, and where people cannot pay there are high indigence rates and ineffective implementation of credit control and debt collection measures. The lack of qualified and competent personnel for revenue collection or financial management has also constrained work in many municipalities.

 

Another critical area requiring attention is the legislative and policy environment which does not facilitate the prevailing energy transition experienced globally and locally.

 

 

The SALGA energy summit held in March heard for example that in some instances, South Africa’s current legislative and policy environment acts as an impediment to the trends of decentralisation, democratisation, digitisation and decarbonisation in the energy sector. Some of the specific challenges identified at the Summit regarding the country’s enabling policy environment include the lack of clarity on constitutional and legislative mandates regarding areas of electricity distribution and reticulation by Eskom and local municipalities.

After the introduction of Section 215 (1) and Section 229 (1) of the Constitution, which defines the responsibilities of municipalities in South Africa, the Municipal Demarcation Board established municipal boundaries, designating areas constituting the jurisdiction of such municipalities.

 

From the energy supply side, this created a complex situation for municipalities where areas within one municipal boundary would be serviced by different service providers, with different service standards, different tariff structures for customers and revenues going to different institutions, Eskom or the municipality.

Eskom and municipalities have conflicting positions on this matter. Municipalities believe they have exclusive authority to administer the reticulation of electricity. This implies that Eskom distributes and reticulates electricity on behalf of a municipality in its licensed allocated areas. The view is that Eskom is an external service provider of a municipality as envisaged in Section 76 (b) of the Local Government: Municipal Systems Act.

 

Eskom’s view on the other hand is that “executive authority” is not defined in the Constitution and as such, it does not imply an exclusive authority to municipalities on electricity distribution and reticulation. This is based on the Electricity Regulation Act, 2006, which allows NERSA to issue licenses for the distribution of electricity or the trading of electricity.

 

Municipalities are unable to levy surcharges or exercise credit control in Eskom supply areas. There is a lack of tariff parity between municipal supply areas and Eskom supply areas, meaning simply that, for example, Eskom reticulates electricity cheaply to richer areas compared to what Johannesburg City Power does to poorer areas, a Sandton-Alexandra type disparity.

To look into and resolve this constitutional and legislative conundrum, Government established the Inter-Ministerial Task Team on Electricity Reticulation, Distribution and Monies owed to Water Trading Entities and Water Boards. The IMTT’s mandate is to look into the Constitutional issue of the authority or reticulation of electricity, as well as other structural and systemic challenges in electricity reticulation.  The IMTT comprises of the Ministers for Cooperative Governance and Traditional Affairs (as Chairperson), Finance, Water and Sanitation, Energy and Public Enterprises, the President of SALGA and Chairperson of the Eskom Board.

 

The IMTT has appointed an Advisory Panel to make recommendations to resolve various aspects of the challenges involved in the Eskom and water boards crisis, such as the following:

  • Constitutional and legislative Mandate for distribution of electricity between Eskom and Municipalities.

 

  • Licensing conditions by NERSA to delineate jurisdictions between Eskom and municipalities.

 

  • Restructuring of Eskom debt to municipalities.

 

  • Improved mechanism for collection; looking at efficacy of conventional metering compared to prepaid installations.

 

  • Reinvigorating the campaign for the culture of payment for services in community; government and private sector.

 

The Interim Report of the Advisory Panel generated a helpful discussion before the Standing Committee on Public Accounts (SCOPA) in June and we will be returning for another briefing once the Report of the Panel has been finalised and processed.

 

We look forward to resolving these matters without much delay as they are critical for the industry and the country.

 

COGTA is also seized with intervening and supporting municipalities to become functional and deliver services better. A number of perennial political, service delivery, financial management and governance challenges, continue to remain an impediment to achieving a fully functional and developmental system of local government.

 

We are currently implementing a Municipal Recovery Programme working with the National Treasury as well as provincial government leadership. We have identified 87 municipalities for urgent support. I have visited six provinces since April this year and have met with premiers, MECs and mayors to discuss the interventions.

The Municipal Recovery Plan interventions take forward the Back to Basics principles and approach and are based on the following priority areas:

  • Governance
  • Financial Management
  • Infrastructure and Services
  • Fighting Fraud and Corruption and
  • Political interventions

We have issued a public call for experts in the governance, financial management and other fields to form part of panels that will assist us tackle the governance and administration challenges in the affected municipalities. We will soon advertise for companies with similar expertise to form part of the database.

We also noted that municipalities that experience service delivery challenges and community protests are characterised by amongst others the lack of capacity to plan, deliver, operate and maintain infrastructure. For example, the electricity infrastructure is old and needs rehabilitation and maintenance in some municipalities, while non-revenue water losses are costing municipalities almost R10 billion in revenue annually.

 

Many of our water schemes need refurbishment while water treatment plants were by 2014, already being defined as in high and critical risk categories with sewage being discharged into rivers or into homes. Current challenges include sewer spillages in areas such as Ditsobohla, Madibeng and other areas in North West as well as Gert Sibande district in Mpumalanga province. Emfuleni municipality in Gauteng is also facing a serious situation with regards to sewer spillages into the Vaal River.

 

The poor road conditions and recurring potholes, poor road markings and signage, poor roads and storm-water drainage shortages are other infrastructure challenges that require attention, which makes people frustrated and angry.

 

Some of the problems arise from the fact that the number of municipalities that are struggling with spending their Municipal Infrastructure Grant (MIG) allocations has remained high, meaning that they receive money from the fiscus for infrastructure development or maintenance but cannot spend it, due to be lack of technical capacity in the main.

 

 

As part of the Municipal Recovery Plan, more than 50 municipalities have been selected to receive support through the deployment of district support teams by the Municipal Infrastructure Support Agent (MISA), which is the implementing agent of COGTA. In the past financial year we recruited 36 Civil Engineers, 14 Electrical Engineers and 14 Planners to date. In August this year we hosted a send-off ceremony for the more than 80 engineers and town planners who have been deployed to distressed municipalities. We trust that those municipalities with engineers will now be able to spend their infrastructure budgets.

 

 

 

 

Further support to municipalities has included the training of 303 apprentices in technical fields, the training of 557 municipal officials in various aspects of municipal infrastructure delivery, and the placement of 102 qualified artisans and water process controllers in low capacity municipalities. We are determined to build the necessary capacity for the sector and trust that the electricity supply industry will support us in this regard.

 

COGTA is also intervening to counter non-technical revenue losses as part of the Municipal Recovery Plan. We are providing support to 42 municipalities from April 2018 to implement a simplified revenue plan. The objective of the revenue plan is to improve revenue management, reduce municipal consumer debt, and to protect and enhance the revenue collection potential of the municipalities. Some of the work that COGTA looks at with this intervention include meter installations, meter management and meter readings data management – property data, meters and consumer data, accurate and timely billing, payment and receipt management, credit control, debt management and collection cash and liquidity management.

 

We believe that these initiatives will contribute positively to the financial cash flow situation of the Municipalities in an ongoing sustainable manner.

As we celebrate the centenary of Mama Albertina Sisulu this year, I would like to commend AMEU for implementing the Women in Electricity initiative to drive transformation in the electricity sector. I urge you to keep the momentum on this programme and ensure that it achieves its desired objectives.

 

We look forward to receiving the report of your convention because it will be helpful in our work. We are partners in the business of building better communities and a stronger and better performing economy.

 

I wish you all of the best with your deliberations.

 

I Thank you.