Independent Electricity Management Operator Bill: consideration

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Mineral Resources and Energy

10 March 2020
Chairperson: Mr S Luzipo (ANC)
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Meeting Summary

Deliberations on the Democratic Alliance’s (DA) Private Member’s Bill, the Independent Electricity Management Operator (IEMO) Bill -- also known as the “Cheaper Electricity Bill” --continued before the Portfolio Committee on Mineral Resources and Energy.

The DA called Members across the political divide to set their differences aside and support the introduction of this Bill to secure energy security and the future for all South Africans.

The DA’s Bill sought to break Eskom into two separate entities – a generation and a transmission/distribution entity. The plan would see a generation entity that was privatised to break Eskom’s monopoly on the production of energy, allowing Independent Power Producers (IPPs) to compete on an equal footing in the generation sector.

Well-functioning metros would be able to source energy directly from IPPs, and electricity supply would ultimately become more stable, cleaner and cheaper.

The ANC, IFP, and EFF were unanimous in their rejection of the Bill. ANC Members called for the Independent Market and System Operator (ISMO) Bill, which was passed by the National Assembly in 2013 and subsequently withdrawn, to be resuscitated and brought back to Parliament. Some even suggested that the IEMO Bill drew heavily from the ISMO Bill, and that the Integrated Resource Plan (IRP) and the unbundling of ESKOM should be given a chance.

The notion that any part of ESKOM had to be privatised was summarily dismissed by the majority of Members.

Meeting report

Independent Electricity Management Operators (IEMO) Bill deliberations 

The Chairperson informed the Committee that the Department of Justice and Correctional Services (DoJC) had concluded that the Independent Electricity Management Operator Bill was unconstitutional, based on findings that the bill sought to curtail, and impede on, the Minister of Mineral Resources and Energy’s powers as the relevant competent authority, as well as that of municipalities.

Mr K Mileham (DA) replied that the DoJC had erred in its legal opinion on the unconstitutionality of the bill. The Bill left the distribution function in the hands of municipalities and only sought to assist in the transmission of electricity.

The Bill did not seek to impede or curtail the Minister’s constitutional powers as the ultimate decision-maker. He said that any legislation was subject to negotiations, and urged Members to maintain an open mind and to make proposals.

He added that the Bill sought to give a voice to both the President’s and the Minister’s pronouncements on the introduction of Independent Power Producers (IPPs) into the grid, and that municipalities in good standing would be empowered to procure and transmit their electricity from IPPs.

On the shareholder's structure, he said that the shareholding would be evenly distributed between the private entity/ies and the government. The Minister would be able to appoint five representatives to a ten-person Board that could comprise of members of the community etc, whereas the remaining five would comprise of five technical experts.

He explained the Bill did not impede on the functions of municipalities, as the only thing it sought to foster was to allow municipalities, especially metropolitan municipalities in good standing, to procure and distribute electricity.

The Bill was aimed at finding a mechanism to address South Africa’s energy crisis and to open and allow for a much more transparent grid and transmission.

Ms C Phillips (DA) indicated that she wanted to point out and assure the Committee that the Bill did not seek to undermine or impede the government’s role. 6.3 (a) of the Bill made it clear that the proposed IEMO had to procure electricity in line with government policy. This was an obvious safeguard that proved that nothing was being taken away from the government.

Ms V Malinga (ANC) commented that she did not understand why the IEMO bill was needed when the Integrated Resources Plan (IRP) had already been introduced by the government and deliberated by the Committee. The proposed legislation of the DA did not entail anything new. The functions of the proposed entity would strip ESKOM of its functions.

She wanted to ascertain how the Committee could be certain that the proposed bill did not steal from the erstwhile proposal to establish an Independent System and Market Operator (ISMO) through the ISMO Bill.

Mr M Mahlaule (ANC) commented that it was important to consider the comments by the DoJC on the constitutionality of the bill. He had also listened intently to the submission by Ms N Mazzone (DA) to the Committee during a previous meeting, and had concluded that the IEMO Bill was nothing but an attempt to privatise certain functions of ESKOM. The proposed private ownership of ESKOM was problematic.

He further questioned why government would transfer public-owned entities to a private entity when there had been no assurances nor indications of who would compensate ESKOM for the assets that would be transferred to the privately-owned entity. It seemed as if no consideration had been made for payment to ESKOM, as well as who should be held responsible for this.

He also wanted to know what would happen to the staff that fell within the units that were to be transferred over to the new entity. Would these workers be retrenched or absorbed into the new entity?
He further noted that the restructuring of ESKOM had been reflected in the roadmap presented to the Committee in 2019. Having the national grid in private hands should never be an option, as ESKOM constituted an important cog in the country’s economy, and he questioned which best practices the DA had considered. 

Mr Mahlaule stated that the special tariff arrangement with high usage clients such as metros seemed unclear. He believed this Bill should not be supported, as it gave no clear reason why a private company would be a better option for ESKOM.

Mr Mileham replied that ESKOM was a horrendous failure, and that Members had to accept and face this reality. What IEMO sought to do was to allow for the purchase and resale of electricity.

Concerning Section 37 (1) that dealt with IEMO tariffs and fees, he proposed that if the necessary amendments had to be made, then Members were more than welcome propose amendments.

Mr S Kula (ANC) commented that the notion that private ownership was better than public ownership had to be dispelled. The Committee could not entertain a Bill that was not in the interest of the country, especially since it was an attempt at the private ownership of ESKOM. It was also unclear whose interest was being served by the proposed inception of the IEMO. The composition of the Board was also worrying, as it seemed like an attempt to take control away from the government.

He said that there were several South Africans who were always unhappy about everything the government did. They questioned the government’s ability to manage South Africa properly. This situation was worrying. He called on the proponents of the Bill to wait for the restructuring of ESKOM to take effect, as pronounced by the government.

Mr M Nxumalo (IFP) said he was not in support of the virtual privatisation of ESKOM. The IFP also supported the view that ESKOM should be managed in such a manner that the government retained ownership over key national interests. The government’s ability to deliver electricity to South Africans should not be compromised. He called on Members to give the IRP and the unbundling process of ESKOM a chance.

Ms Malinga added that the IRP document was a “live” document, and the public participation in that process was still on-going. The IEMO Bill spoke about the issues contained in the IRP, including that of an energy mix. She questioned why certain Members had put the cart before the horse.

Mr D Mthenjane (EFF) said that he had fought a racist government, a system that only thought of the white minority. In 1994, South Africa elected its first black democratically-elected government with a detailed plan to transform South Africa. Since the inception of democracy, the minority in the country had questioned a black man’s ability to govern. If something was not in the interest of the minority, “they” railed against it. He asserted that the Bill sought to create two centres of power. He acknowledged that ESKOM had been failing. However, that failure had been a result of poor leadership and corruption.

The Bill was thus seen as a set-up that would lead to self-exposure. There were people in South Africa who would like to see ESKOM fail so that they could come up with their schemes.

He added that South Africans would be very surprised to learn about this Bill was virtually a call for privatisation. He also rejected the notion that privatisation was necessarily always a good thing.

He concluded that it was very boring to continue discussions on this Bill in the face of pressing issues. He rejected the Bill with the contempt it deserved.

Mr Mahlaule acknowledged that load shedding had become a problem, but this situation should not lead to the Committee being “dictated to by the barrel of a gun.”

He added that the Bill lacked critical information. It was interesting that the Bill sought to create an independent private entity, yet it still required government funding. The Bill made no sense, and thus he could not support any aspect of the Bill. There was a need for public hearings on important decisions.

Mr Mileham responded that he had no objection to the proposal made by Mr Mahlaule for public hearings on the Bill. However he had a big problem with the outright rejection of the Bill by the Committee without public input. He also took issue with the racialisation of the debate.

The Bill had nothing to do with the IRP that dealt with an energy mix, whereas the Bill was about the management of electricity transmission and distribution. It sought to make the implementation of the IRP easier.

Now there were private entities that had surplus electricity to sell to ESKOM, yet the regulatory framework prevented this extra electricity from being “fed” into the grid.

The Bill was also in the interest of job creation and a stable supply of electricity. Any innuendos to the contrary, he rejected.

On assets, and the identity of prospective shareholders, Mr Mileham stated that IEMO would assume responsibility for the debt associated with the assets, and that he had no idea who these shareholders might be.

He added that ESKOM’s generational capacity had been severely hamstrung and that there was nothing in place to facilitate the entry of the IPPs now.

He asked Members to forget about ideologies and to do the right thing that ensured that the lights were kept on. If things proceeded at the current trajectory, ESKOM would collapse.

The Chairperson stated there was nothing wrong with deliberation, as the Committee had indicated that once the DoJC had pronounced on the Bill, the Committee would deliberate. The danger with certain deliberations was that people acted as if they knew of certain issues, when in effect they did not.

The Chairperson wondered whether the Bill entailed the demise of ESKOM, and what would happen to the power utility. It almost seemed as if certain Members were saying that ESKOM was not needed.

Mr Mileham replied that IEMO would not assume ESKOM’s functions, as it would continue to be responsible for electricity generation.

Ms Malinga disagreed with the Bill, and labeled it as nothing but a sham, as the Bill was aimed at metros. She wanted to know what would happen to other municipalities, and why the IRP was not being given a chance.

Mr Mthenjane questioned Mr Mileham’s motives, and stated that the function of the proposed IEMO would be to assume full ownership of ESKOM and to gain control of the national electricity grid in South Africa. He said that the privatisation of ESKOM would not happen under the Committee’s watch, and questioned why the Bill was aimed at metros.

He said some people wanted to see the demise of ESKOM, and that this should not be allowed. South Africans would reject such a move. Apartheid should not be allowed to return.

Mr Mileham objected to the comments by Mr Mthenjane. He also questioned why Mr Mthenjane and other Members spoke as if the Committee had already pronounced on the bill.

Mr Mahlaule took exception to Mr Mileham’s conduct. Additionally, he wanted to make it clear that he did not call for public participation on the IEMO, but rather for the ISMO Bill.

He reiterated his support for the ESKOM unbundling process.

The Chairperson said that the Bill complicated matters, as it spoke a lot to the ISMO Bill. Many Members on the Committee had alluded to this as well. He questioned why there was a need for public participation on the IEMO Bill.

He proposed that the Bill also be shared for deliberations by the Portfolio Committees on Finance and Public Enterprises, as there were overarching aspects in the Bill.

He proposed that the Committee find time in its upcoming schedule to consult internally with the relevant Committees as mentioned.

Mr Mileham replied that he had no problem with the proposal by the Chairperson. However, he wanted to address the factual discrepancies raised by some Members.

The Bill was not against other municipalities -- all that it sought to do was to give voice to the President and Minister’s pronouncements. IEMO would not be taking over the national grid -- the proposed entity would be responsible only for the transmission of electricity, and not power stations.

Ms Malinga was adamant that the Bill should be rejected.

Mr Mileham interjected that it would not, at which point Ms Malinga called on Mr Mileham to “shut up”.

Mr Mileham called for a point of order on account of the comments by Ms Malinga.

The Chairperson said he had warned Members not to interject when other Members had the floor, as this would lead to chaos. He asked Mr Mileham to withdraw his comments, as well as Ms Malinga.

Both withdrew their comments.

Mr Mahlaule said that Chairperson should not allow what appeared to be “superior knowledge”. “Superior knowledge” did not necessarily mean the right thing.

Mr Mileham asked whether legal advisors would be present at the coming meeting to advise on the content of the Bill.

The Chairperson said that he had laid the foundation for meaningful interaction, and that the legal advisors would not be advising on the content of the Bill but the legality thereof, and the process that had to be followed.

He thanked Members for their inputs, and adjourned the meeting.

 

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