The challenges of returning SA's electricity market to a semblance of normality rest largely with Eskom, which is responding with a range of short-term supply-side measures and a long-term programme to double the capacity of its generating capacity.
What has been lacking is a concerted government effort to look at the structures and regulation of the sector to ensure that the industry functions more efficiently and future power outages are avoided. While there are some short-term actions government can implement - national treasury has still not announced details of its R60bn debt support programme for Eskom - the bulk of the measures are more fundamental and will require a political will which to date has been lacking.
The FM has identified six key policy reforms:
- The reform of the electricity distribution industry has been over a decade in the making, but is barely out of the starting blocks. The government plan is solid: consolidate the power distribution assets held by Eskom and about 260 municipalities under a handful of regional electricity distributors (Reds). These Reds will have the resources and skills to oversee the distribution of power to consumers and rebuild the infrastructure that has been neglected by most cities. Over the past decade less than 10% of electricity tariffs have been reinvested in municipal power lines and substations. Cities have resisted the plan, fearing that they will lose a major source of their revenue. But their inability to manage their finances is putting power supply at risk. Pretoria needs to implement the Reds plan as soon as possible and, if need be, force local government to accept the restructuring.
- Break up Eskom's generation and transmission division. Eskom is now the buyer of all electricity, even that produced by independent power producers (IPPs). Earlier this month the only large IPP to have been given the go-ahead to build new power stations, America's AES, pulled out when its tender conditions were altered. It mirrors the experience of other IPPs who were discouraged by Eskom's insistence that the tariffs match its own low rates. An independent transmission company should take over that responsibility, buying power at market-related levels from both Eskom and the IPPs.
- Government refuses to consider selling parts of Eskom. This is short-sighted, particularly given that the utility will have to spend well over R1 trillion over the next 20 years to double its power capacity. Selling off minority holdings in individual power stations will bring down the bill significantly. French utility EDF has offered to buy into Eskom's R700bn nuclear power plan - government should accept the offer.
- Industry regulators should be staffed by the best and most experienced sector specialists. The National Energy Regulator of SA (Nersa) is notoriously understaffed and many of its senior executives are not of the necessary calibre. Higher budgets and a recruitment drive should provide Nersa with the much-needed weight and import lacking to date.
- There should be a new tariff regime for the industry. Nersa needs to implement a market-related one that reflects the costs of generating power but also allows distributors to charge higher tariffs in peak times and lower ones at slack periods.
- At present Eskom is guarded over by the department of public enterprises, its shareholder ministry, and minerals & energy (the policy department). The split responsibility for SA's largest utility is partially to blame for the current mess. Eskom, and other parastatals for that matter, need one responsible ministry which decides government policy and ensures that it is implemented according to plan.
