National Energy Regulator of South Africa (NERSA): Electricity Tariff Setting; Regional Electricity Distributor Zones: briefings

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
24 May 2006
NATIONAL ENERGY REGULATOR OF SOUTH AFRICA (NERSA): ELECTRICITY TARIFF SETTING; REGIONAL ELECTRICITY DISTRIBUTOR ZONES: BRIEFINGS

Chairperson: Mr N Mthethwa (ANC)

Documents handed out:
PowerPoint presentation by National Energy Regulator of South Africa (NERSA) on Electricity Tariff Setting
PowerPoint presentation by Department of Minerals and Energy (DME) on RED 7
Office of the MEC, Gauteng, Submission on the National RED
PowerPoint presentation by Electricity Distribution Industry (EDI) Holdings: Restructuring Progress Report
Draft Report of the Committee (handed to Members only)

SUMMARY
The National Energy Regulator of SA reported that it was established in September 2005 as a multi-sectoral regulator to control electricity, petrol pipelines and gas, but operated concurrently with the National Electricity Regulator (NER) until NERSA’s enabling legislation had been passed. The history of the regulation of electricity prices was summarised. The current electricity price determinations were done over a three-year period, and an approved increase of 5.1% in 2006/7, rising to 6.2% in 2008/9 had been set. The objectives and processes were tabled and explained. Stakeholder interaction was important and there was a public process for setting the tariffs. Municipalities were also affected, and the process included one complying with the Municipal Finance Management Act. Challenges included the multiplicity of municipalities and tariffs, the question of cross-subsidies, differences in size, density and needs, capacity of municipalities and the fact that NERSA did not have the necessary legislation to allow it to enforce its decisions. Questions raised by Members included the matters examined by NERSA, including remuneration of senior Eskom executives, whether the tariffs would apply to independent power producers, and NERSA’s power to reopen the determinations. Questions were asked as to reasons for power outages and whether Eskom could afford to build new facilities. The position of municipalities and enforcement of tariffs was raised.

The Department of Minerals and Energy and Electricity Distribution Industry Holdings both presented on the Regional Electricity Distributor zones. DME had faced many challenges in the past year. Its restructuring objectives aimed to meet these challenges by providing better access, good quality, sustainable affordable electricity, rationalised competitive tariffs, viable regional distribution and secure employment in the industry. During 2005 it was decided to set up six Regional Electricity Distributor boundaries, anchored around the metro cities. Cabinet had revisited this in September 2005 and it was now proposed that there be seven REDs, six in the metro areas and the seventh, nationally owned, covering all other areas. The reasons for departing from the original proposal were tabled. DME and EDI had presented memoranda, and EDI had set up a modelling exercise to assess the overall impact, which included viability, governance, and fiscal risk of the National RED. The proposals were still under consideration and the report was therefore not yet to be distributed.

EDI had been established as an associated institution of DME to manage the process of restructuring. Progress included the implementation of RED 1 in the City of Cape Town. Overall reform of the industry was needed. EDI could not yet report on the outcome of its modelling, as Cabinet had not made a final decision. The challenges faced in restructuring were tabled, including the need for legislation, the roles of national and local government, implementation of municipal surcharges, final structures, ownership and fiscal consideration. Policy issues relating specifically to local government were outlined. All of these challenges and issues would need to be addressed in order to implement the plans. Questions raised by Members related to whether the RED project was indeed ready for implementation, as conflicting answers were given to different Members of the Committee at different meetings. The reason for the decision to establish seven REDs was dealt with in detail. Members expressed concern about the lack of enforcement powers, and the role of municipalities. Timeframes were discussed. It was agreed that pending a final decision from Cabinet there was little point in discussing the matter further and therefore DME and EDI would be asked to make further progress reports in due course.

The Draft Report of the Committee on the Department’s 2006/07 Budget was adopted.

MINUTES
Presentation by National Energy Regulator of South Africa (NERSA) on Electricity Tariff Setting
Mr C Matjila (Chairperson, NERSA) reported that a regulator was established in 1995 to regulate the electricity industry. In September 2005 NERSA was formed in response to the Government’s decision to establish a multi-sectoral regulator to control electricity, petrol and pipelines and gas industries. NERSA had nine Members, some of whom were part-time and was supported by a secretariat headed by the Chief Executive Officer.

NERSA had formulated and approved a three-year strategic plan that guided the annual business plan. It was busy with initiatives on the new mandate, as neither pipelines nor gas had been regulated before. Rules had been gazetted for licence holders and the secretariat was busy assessing applications. 45 applications had been received for pipelines and 176 for gas. NERSA was mindful that outages were likely in the Western Cape and would continue to monitor the Eskom Western Cape Recovery Plan to ensure security of supply. NER (National Electricity Regulator) still co-existed with NERSA until de-listing and had finalised the audit on the Western Cape, which should be released shortly and sent to the Portfolio Committee. NERSA had moved to a multi-year determination allowing the Regulator to determine the price requirements over three years. Mr Matjila thanked the outgoing Minister for her leadership and congratulated and welcomed the new Minister on her appointment.

Mr S Mokoena (Chief Executive Officer (CEO), NERSA) reported that most of the work in the last year had been done by NER and NERSA was concentrating on the regulation of pipelines and gas. Mr Mokoena reported that in 1994 Eskom had agreed that prices would be brought down before 2000, using a "revenue required" methodology. In 2002 a new methodology using "rate of return" was approved, so Eskom would recover costs and a fair rate of return. In 2004 a separation was made between generation, transmission and distribution and the transfer price mechanism was then used to determine the prices. In 2005 a decision was taken to determine the price over a three-year period to give stability and credibility, and the final determination was made on 14 February 2006. The approved prices for three years were an increase of 5.1% in 2006/7, an increase of 5.9% in 2007/8 and 6.2% in 2008/9. This included funds for restructuring the distribution industry. The mechanism was also based on the rate of return with more incentives to efficiency. Objectives include limiting the risk of excess or inadequate returns, incentives for new investment, reaching stability consistent with socio economic concerns, giving the economy positive signals. It also aimed to give good balance of risk, be simple to apply, provide a systematic basis for setting tariffs, ensure consistency between controls and ensure legal compliance.

An appropriate method for valuation of assets was a key issue. If the difference between actual and assured revenues exceeded 3%, the Regulator could decide to reopen the price calculation. If there was a difference of more than 10% the Regulator was obliged to reopen the price calculation. It was important for the Regulator to ensure that it did not compromise Eskom’s ability to borrow, nor make any compromise on quality and reliability of service, as well as ensure that the cash flow requirements did not warrant volatile increases.

The structure adjudication process determined a process for collecting tariffs from varying customer classes, to give pricing signals to inform customers’ load profiles. In line with this, and based on the cost of supply, there was an ongoing process between NERSA and other stakeholders such as the SA Local Government Association (SALGA), National Treasury and large users. NERSA also analysed the potential impact of different customers. Eskom was required to submit its plans to NERSA and to publish them for public comment, before the approval process. Retail tariffs also affected Municipalities so there were also requirements in terms of the Municipal Finance Management Act. The final approval was to be tabled in Parliament. There was no major adjustment for 2006/7 and unlikely to be one for 2007/8. If there were any changes they would be effected in the following financial year.

The valuation and approval of municipal tariffs used Eskom price increases as a guideline. There were currently 174 distribution entities who purchased virtually all electricity from Eskom for distribution, but there was a difference in cost to municipal customers and Eskom customers. An interim National Distribution Guideline was approved in 1995. The National Retail Tariff Guideline contained key principles to enhance economic efficiency, to permit some freedom of choice, to require distributors to apply the defined national code of supply, to establish and publicise an average level of cross-subsidy and to make the tariffs easy to understand, economical and appropriately supported. The Regulator would try to assist the Municipality in meeting the guidelines.

The challenges included the fact that municipalities differed in size, density and customer needs. The capacity in some municipalities remained an issue. Some municipalities ignored the Regulator and implemented unauthorised tariffs. However, NERSA had made progress and hoped to fulfil its mandate to ensure that all South Africans enjoyed fair and reasonable energy prices, despite the challenges of new generation investment.

Discussion
Mr W Spies (FFP) asked whether NERSA, when taking the costs and expenses of Eskom into account during the tariff process, was able to look into the salaries of the top executives, which appeared to be way out of line with other parastatal bodies such as Transnet.

Mr Mokoena replied that when setting the tariff disallowable and allowable expenses were presented and considered. Eskom had three clearly defined registered business operations but in addition it had a centrally administered cost centre, which contained the costs relating to remuneration and personnel. The Regulator did interrogate "the basket" but could not examine the business approach. In other words, it could look to manpower costs, but not to individual salaries. This was probably an issue to be dealt with between operator and shareholders, who could also consider whether Eskom had too much free cash flow, and whether shareholders were taking sufficient dividends. NERSA could bring these concerns to the attention of shareholders but could not take the decisions.

Adv H Schmidt (DA) asked whether Eskom’s reaction to the latest prices had been favourable.

Mr Mokoena reported that the process had been fully consultative in anticipation of the requirements of the National Energy Regulation Act. The fair process had included public hearings, and some submissions were disallowed. Eskom did not raise any objections formally and the new determination applied from 1 April.

Adv Schmidt asked how the process applied to the Independent Power Producers (IPPs).

Mr Mokoena confirmed that there were long-term investment decisions in which the Regulator did not determine prices. However because of the current bid process NERSA could play a part in future. The pricing guide did not necessarily affect IPPs at present.

Adv Schmidt requested further clarity on the 3% and 10% deviances that the Regulator could and must examine.

Mr N Singh (Electricity Regulator, NERSA) responded that this figure was calculated on revenue.

Professor I Mohamed (ANC) asked for comment on Eskom’s report that they were likely to have to shed loads because their income was not sufficient to enable necessary building projects. The public were being told constantly that Eskom was trying to resolve the problems, but had never been informed specifically whether the outages were due to insufficient supply or insufficient funding, nor what exactly needed to be addressed.

Mr Singh responded that Eskom had argued that the allowed revenues constrained capital investment. The mechanism allowed for capital to be invested and returns to be earned. The argument that there was insufficient capital was not well substantiated. Eskom’s exposure to risk, its monopoly and other factors were all taken into account when considering whether the return was appropriate, and Eskom was able to raise funds and had the cash flow to meet the capital investment required.

Mr J Combrinck (ANC) asked for further clarity on incentives for new investment, since Eskom held a virtual monopoly in supply.

Mr Mokoena replied that the government had suggested that 30% of new generator costs would be borne by private companies and 70% by Eskom. That government decision had been translated to a competitive bidding process, in which NERSA was involved.

Mr Combrinck asked why it was necessary to increase the tariffs each year as he was concerned that this would take electricity out of the reach of the poor. He also enquired whether municipalities would pass on the increases.

Mr Mokoena replied that the prices were set taking into account a 20-year analysis of needs and plans, which was then distilled down to a three-year process. Needs were influenced by numerous factors, including capital investment requirements. There could be some changes depending on the investment profile requirements. Municipalities were given general benchmarks in regard to increases.

Mr Combrinck asked what was being done by NERSA to ensure that the municipalities understood the Regional Electricity Distributor (RED) principle.

Mr Mokoena replied that when the benchmark was applied, the rationalisation tariffs were taken into account. When NERSA was appraised of the new developments it fixed tariffs in line with those. Within a RED the tariff would also be normalised and rationalised. Electricity Distribution Industry Holdings (EDI) would address the long-term solution, but in the short term NERSA was attempting to ensure that there was a smooth transition from Municipalities to REDs.

The Chairperson enquired whether there were pricing plans for the new REDs.

Mr Matjila replied that municipal capacity had presented a challenge, as some did not have the ability to comply. NERSA had held a conference on distribution infrastructure and had thereafter monitored the implementation of the recommendations. One of the weaknesses in the present structure was that NERSA was unable to enforce licence conditions. It could "bark but not bite". NERSA hoped that the new legislation would address the problems of defiance. Many municipalities did not wish to plough back the returns to improve the distribution. NERSA would begin some disciplinary action against specific municipalities who had already been identified by an audit. Some of the steps might seem insignificant but it was hoped that a culture of compliance would be created, when NERSA clearly indicated that it would not tolerate lack of cooperation.

The Chairperson expressed his concern that the lack of enforcement was a perennial issue. The Chairperson felt very strongly that the aims of NERSA to create stability could not possibly be achieved without legislation that conferred the necessary powers.

Mr Matjila confirmed that the long-term solution was to have a fully empowered Regulator, but notwithstanding the capacity constraints at municipal level, there were still some distributors who were simply defiant. NERSA was therefore considering instituting criminal proceedings, publishing lists of recommended tariffs and pointing out the deviance to customers. The larger problem remained that some municipalities were unable, failed or were unwilling to effect the requirements of ring fencing, and used the proceeds of electricity to cross-subsidise other operations, leading to a deterioration of the infrastructure. NERSA attempted to provide a cooperative and assisting role.

The Chairperson asked if any practical solutions had been proposed to the problem that the sole (sic) income of the municipality was derived from electricity.

Mr Matjila stated that solutions were outside the mandate of the Regulator. Although NERSA interacted with the Department of Provincial and Local Government (DPLG) on Project Consolidate, an interventionist programme to address immediate needs, NERSA could not and were not mandated to address this problem on a full-time basis.

Ms N Mathibela (ANC) enquired whether it was possible to meet the deadline of 2012 for electricity supply.

Mr Mokoena replied that although NERSA was a contributor the main driver was the Department of Minerals and Energy (DME).

Briefing by the Department of Minerals and Energy (DME): Report on RED 7
Mr O Aphane (Chief Director: Electricity, DME) reported that DME had faced many challenges in the past year. These included ineffectiveness due to fragmentation, inadequate maintenance networks, inability to supply to the indigent, unequal treatment of consumers across the country, with more than 200 different tariffs, significant disparity in tariffs and little economy of scale. DME’s restructuring objectives aimed to meet these challenges by providing better access, good quality, sustainable affordable electricity, rationalised competitive tariffs, viable regional distribution and secure employment in the industry.

DME reported that during 2005 a proposal was accepted, setting up six Regional Electricity Distributor (RED) boundaries, anchored around the metro cities. In setting these boundaries DME had looked to size, implementation costs, financial viability, rural electrification needs, good customer spread and a balanced load mix. Cabinet had re-debated the issue in September 2005 and it was now proposed that there be seven REDs. Six would be "pockets" concentrated around the six metro areas, and the seventh, a National RED would comprise all other areas.

The reasons for departing from the six-RED proposal included the concerns of shareholders about cross-subsidies. Currently Eskom charged wholesale to all, even where this did not reflect the true costs of generation, and aggregated by factoring out geographic location and difficulties with equipment. Under cross-subsidies the fiscus could give subsidies in areas where there would otherwise be high costs and thus address poverty. However, there could be problems if one municipality cross-subsidised across another’s boundaries. Some municipalities were unable to deal with their mandates and regarded the electricity revenue as a cash cow. Constitutional alignment, and voluntary agreement on boundaries, posed another problem. Staff harmonisation costs would need to be carried by the industry.

DME had prepared and presented a memorandum to Cabinet. This addressed the legislative framework and its components, the role of Eskom in transmission, recognition of municipal mandates, including an attempt to define reticulation (since municipalities were mandated to imposed surcharges on reticulation customers), cross-subsidies, and whether municipalities could choose whether to join the National or Metro RED, or form their own cluster. Other issues related to the transitional arrangements for Eskom to exit the distribution network to allow a proper merger, transfer of and compensation for municipal and Eskom assets, and other policies.

The recommendations were made to Cabinet, who noted the revised proposal for the 7^th RED and the fact that there would be modelling exercises to assess the overall impact. This would assess the viability, governance and fiscal risk of the National RED. Cabinet was still considering the proposal for the 7^th RED. A cluster of four Ministries was considering the matter and determining the final boundaries, governance, funding and organisation structure and transfer of assets. Cabinet had also been asked to approve the drafting of the EDI restructuring legislation and regulatory oversight.

Briefing by Electricity Distribution Industry (EDI) Holdings
Ms D Mokgatle (Chair, EDI Holdings) reported that the White Paper on Energy and the Blueprint of 2001 had addressed the restructuring of the industry. EDI had been established to manage the process of restructuring, which began in 2003. Progress had been made within the time frames anticipated, including the implementation of RED 1. Overall reform of the industry was needed, rather than merely addressing problems piecemeal. EDI worked with the Minister of Minerals and Energy, and appreciated the enormous support given by the outgoing Minister and her Deputy. EDI looked forward to working closely with the new Minister.

The Chairperson commented that there had been some confusion about the National RED, and the Committee would therefore at some stage request EDI to give a summary of the achievements, challenges and the launch of RED 1. However he requested that EDI concentrate in this presentation of the National RED.

Ms P Nzimande (CEO, EDI) reported that EDI had set up a project to manage the modelling that had already been outlined by DME. This had been finalised and a report had been forwarded to DME on 19 April. However, since Cabinet had not yet made its submissions EDI had been instructed not to release the contents of the report, nor any figures, although it could highlight some of the challenges.

The policy issues raised in the Blueprint and the White Paper had included the need to meet electrification targets, facilitating better price equality, number of boundaries, ownership and governance and asset valuations, all of which were pertinent to the National RED. Commercial and regulatory arrangements, tariffs and levies, RED financial transition arrangements, human resource planning, and setting up systems and processes for the REDs all needed to be finalised. The Cabinet decision of 14 September 2005 contained the assumptions already outlined by Mr Aphane.

Key challenges included the following:
- Drafting and passing of enabling legislation: although there was currently no enabling legislation EDI was working with the existing framework
- Determination of the future roles of national and local government: the roles of NERSA and local authorities were unclear, particularly in regard to reticulation. REDs would have to comply with the Electricity Regulation Act and municipal regulations.
- Implementation of the local government electricity surcharges: national legislation would be needed to reassure municipalities about the financial implications of restructuring. There was currently no uniformity in calculating or extracting surpluses and in maintenance. A proposal had been drawn up to set norms and standards. National Treasury was working on this Bill.
- The final structure: the Cabinet decision of 14 September 2005 envisaged the creation of 6 Metro REDs, the creation of a national RED and a limited choice for certain municipalities. There would need to be definition of reticulation, a decision on phasing in of objectives and a decision on boundaries.
- RED ownership and fiscal considerations: the White Paper had suggested REDs should be owned by National Government, the Blueprint had provided for mixed ownership by National and Local Government, with all contributors of assets being compensated. EDI believed that long-term it would be necessary for all stakeholders to agree on certain objectives and be able to meet their obligations.

Policy issues relating specifically to local government included concerns that local government, having only just consolidated, were still unsure of powers and functions, including reticulation. Co-operative governance was needed. Local Government legislation allowed a split between the service authority and service provider. EDI believed this should be exploited so REDs could be the preferred provider. The fiscal framework for local government had not yet been finalised and until this happened, local municipalities could not participate in EDI restructuring. Many were worried that they would lose money, since they could no longer rely on Regional Services Council (RSC) levies, and therefore depended on electricity income. Regulation of EDI was currently done both by NERSA and Local Government with conflict around the tariff setting powers. All of these challenges and issues would need to be addressed in order to implement the plans.

Discussion
Mr Schmidt commented that the entire system was uncertain and fraught with difficulties. Without the ability to enforce its powers, NERSA was bound to be ineffective. The components of the system were so scattered that it was impossible to reach a workable whole. There were problems both in the multiplicity of components, and within each component. If EDI were to be implemented those Councils that relied purely on electricity income could not support facilities such as pools, libraries and roads. If they co-operated with the proposals, they would effectively be losing their income, therefore there was no incentive for them to co-operate.

Mr Aphane agreed that the role of municipalities was a problem as they had defined roles in terms of the Constitution. Electricity reticulation was part of their mandate, and therefore another party could not impede them in carrying out their allocated powers.

Mr Schmidt stated that most legislation emanated from the Executive, although parliamentarians had oversight. He believed that DME had a responsibility to progress the matter further.

Mr Aphane responded that legislation was certainly a tool, but must be framed with regard to the constitutional provisions already in existence. If it was deemed necessary to force municipalities to comply, then amendments may need to be made to the Constitution. It was felt that it was perhaps more useful at this stage to try to deal with matters piecemeal.

Mr E Lucas (IFP) asked for, and received confirmation, that the RED 7 constituted all the country outside metro areas. He asked whether one could not make out a case for nationalising electricity in order to control prices, similar to the way the fuel industry worked. He agreed with Mr Schmidt that urgent legislation was needed.

Ms Nzimande confirmed that the 7 REDs system was effectively not much different from the way Eskom operated, with a national coverage broken into regions. Ideally the REDs should be nationally owned and the question of nationalisation, raised by Mr Lucas, had not been put on the table. She believed it could do a disservice, as it would be difficult to derive optimum value for assets.

Mr C Molefe (ANC) believed that no precise reasons had been advanced why it was necessary to depart from the previous decision and move to the creation of RED 7. He commented on a joint meeting that he had attended some time ago, and asked whether the process had in fact moved any further, and what was the explanation to be given to constituencies. He asked whether there were time frames, and when it was likely that a decision would be made by Cabinet.

Mr Aphane responded that timeframes could not be set absolutely, as municipalities were not forced to enter the arrangements, but DME was doing whatever it could in the circumstances.

Ms Nzimande added that municipalities were beginning to co operate with the restructuring. She believed it would still be possible to meet the timeframes.

Mr Molefe commented that he had now received two seemingly opposing answers on timeframes. He commented that previously the Committee had been told that RED 1 was fully ready to operate but the current comments seemed to indicate that this was not so. Mr Molefe commented that 2010 was given as a timeframe and commitment but that the Cluster was at this late stage calling for recommendations. He asked why this had happened, and why the Committee had been given guarantees earlier that matters were on track when it now seemed that this was not so.

Mr Schmidt supported Mr Molefe’s concerns on the timeline. The Committee had previously received an answer from Minister Hendricks that Reds 2, 3 and 4 would be implemented by the end of the year, and that Red 7 would be implemented in July 2007, but the impression had now been created that the implementation would be "as it goes along". He believed that without a proper macro-evaluation, matters were doomed to failure.

Mr Combrinck also expressed his concerns on this issue. He reported that on 1 June 2005 he had asked a specific question whether the process was ready and was assured that it was, but that REDs 4 and 5 were at a later developmental stage than RED 1.

Ms Nzimande responded that the timeframes had certainly not been taken out of consideration. They still applied as targets, and only one of the REDs had been planned without a particular timeframe. EDI was still attempting to meet the targets of June 2007.

Mr Aphane commented that he and Ms Nzimande were not exactly contradicting each other, but that perhaps DME was being more cautious as it regarded the timeframes as being dependent on the willingness of local government to be involved in the process.

Mr Combrinck asked whether EDI was a parastatal, and to whom it reported.

Ms Nzimande answered that EDI was an associated institution of DME, and accounted to DME and the Minister of Minerals and Energy. Although reports were made to other Ministers as part of the Cluster, EDI did not work with them. In producing the modelling options, EDI had run a stakeholder forum, which included four government departments, NERSA, the Development Bank of Southern Africa (DBSA), SALGA, and six metros.

The Chairperson asked if DME could be more specific as to the stage which had been reached. None of the points made were new; the only question was why the recommendations had been made to Cabinet and what exactly prompted the Cabinet decision of 14 September 2005. There was no explanation why the decision was taken, only two months after the launch of RED 1. The Chairperson had some serious questions on financial viability, where the funding would come from, whether the schemes would be sustainable if funded by National Treasury. He commented also that there was a deadline of July 2006 for transfer of assets in RED 1, but the Cape Town metro had commented that it did not wish to undertake the transfer because it too was unsure of the position. He asked specifically what it was, and why it was so urgent, that persuaded Cabinet to agree to the National RED.

Ms B Tinto (ANC) asked what challenges had been faced by RED 1.

Mr Aphane replied that there had been an assessment of RED 1, whose problems ran contrary to the objectives of a fully-fledged RED. RED 1 existed in name, but had no assets, no transfer into its funds and so forth. RED 1 was also envisaged as anchored by the City of Cape Town (CCT) but it needed to cover a broader geographical area, which would move it into other municipal jurisdictions, and these municipalities were not forced to go into RED 1. The decision by Cabinet had been one to explore other alternatives in view of the difficulties experienced.

Ms Nzimande added that the viability of the National RED had been investigated and various funding options had been put on the table. These would be discussed when Cabinet took its decision, and when the Report had been released. In regard to RED 1 she explained that although there had not actually been a transfer, contracts and operating agreements had been drawn up. Factually it was possible to effect transfer, but the actual transfer would only be done on establishment of the whole system. The difficulties experienced had provided some valuable lessons, but they were not as serious as had been made out. EDI was currently trying to find a solution which would not cause loss to local governments while enhancing services provided. There were various options and the modelling had been quite versatile. Although the Cabinet decision had resulted in some loss of momentum, EDI was working hard on keeping up the processes.

On the question of funding, Mr Aphane responded that the formation of the National RED was part of the process which required modelling to be done, in order to assess the financial impact. The modelling exercise was almost complete. The outcome would be presented to the Ministerial Cluster. In answer to Mr Schmidt’s concerns, he confirmed that indeed the municipalities were reluctant to allow their income to be impeded, but the answers to this would lie in the broader process because there was an overlap between Local Government and National Treasury.

Ms Nzimande added that EDI believed that it was possible to find a solution and that not all avenues had been fully explored. She added that it would be possible for Local Government to take a minority stake, allowing National Government to be the driver of the National REDs. This could be done through the existing legislation which made a distinction between service providers and service authorities.

Mr S Louw (ANC) suggested that the Committee should perhaps adopt a different approach. The issue of REDs was both important and urgent. He believed that no point was served in trying to rush the issue, when only half-formulated ideas could be given. He felt that EDI were unable to give proper answers, as they had been told not to release the content of their report. He suggested that both EDI and DME should be given the opportunity, at a later stage, of presenting a concrete progress report as to what had actually been achieved, and what remained outstanding.

The Chairperson commented that this issue would probably be included in the Committee Report, and that the Committee would probably need to approach the Executive. He would like to hear, in a future report, how many municipalities had come on board, what staff this involved and whether options adopted for one metro would work in another. He agreed that at present it was very difficult for EDI to produce any concrete comments.

Consideration of Committee’s Draft Report on DME Budget 2006/07
The Chairperson tabled a draft Committee Report, based on some of the matters emanating from the previous briefings.

Mr Louw commented that he believed the Report was an accurate reflection and proposed that it be accepted. Mr Schmidt had not been present at all meetings, but was assured that the content of the Report was indeed a true reflection of the Committee’s comments and concerns.

The Chairperson stated that the Report included matters arising from the last Budget Vote, when DME had stated that the target of universal access to electricity by 2012 could not be met on the current allocation. The Committee believed that it was necessary to engage with National Treasury on this issue. The Committee had also commented that some of the matters done by DME had not been profiled.

Since there were no other comments arising from the Report, the Committee voted unanimously to adopt the Report.

The meeting adjourned.