May 7, 2004
By Thomas Thale
IT'S official. Eskom Distribution and municipal electricity distribution units are to be shut down to make way for new national government-owned distribution companies as part of a major restructuring drive.
This means that electricity distribution will be more streamlined, resulting in a more efficient and cost-effective service, with improved infrastructure maintenance.
The new Regional Electricity Distributors (REDs), which are to be established in terms of a 2001 cabinet decision, will take over the distribution of electricity nationally to cut costs and to standardise tariffs. Eskom will still continue to generate and to transmit electrical power.
Eskom supplies 95% of the electricity in South Africa
The restructuring process will see Eskom Distribution and 187 municipalities transferring all their assets, liabilities, obligations, staff and rights to six newly created REDs. The form of their compensation has not yet been finalised.
The process unfolded in earnest after the establishment of Electricity Distribution Industry Holdings (EDI Holdings) in 2003, a 100 percent government-owned company with a mandate to conceptualise, implement and monitor the creation of the REDs. EDI Holdings, which will have a five-year lifespan, has now started implementing the Cabinet decision in a phased process, said Willie de Beer, chief operating officer of EDI Holdings.
Explaining the rationale for creating the REDs, De Beer said electricity distribution in South Africa had been fragmented and inefficient. "There are disparities in tariffs. We have different service standards and quality and different rates for electrification. We need to rationalise the use of limited resources. This will make the country more attractive to investors."
The restructuring process will see some 30 000 employees, currently working for Eskom Distribution and for municipal electricity utilities, being transferred to the REDs. To mitigate the effects of this migration, a comprehensive Human Resources Strategy will be implemented by EDI Holdings, says De Beer.
Joseph Leshabane, director of Social and Economic Development at the South African Local Government Association (SALGA), said municipalities had started informing their employees about the impending changes, but there were many issues which would have to be negotiated with trade unions.
Already, boundaries for the six REDs envisaged have been demarcated. According to De Beer, the REDs will be anchored in the six metropolitan areas in the country: Johannesburg, Tshwane (Pretoria), Ekurhuleni (East Rand), eThekwini (Durban), Nelson Mandela (Port Elizabeth) and Cape Town.
In 2002, a co-operative agreement on the restructuring of the electricity distribution industry was signed by the Department of Minerals and Energy, the National Electricity Regulator, Eskom and SALGA.
Leshabane said the role of SALGA in the process has been to safeguard the interests of municipalities. "Municipalities are particularly concerned about the future of their assets, such as infrastructure and vehicles. One proposal is for municipalities to own shares in the REDs which are proportional to the value of assets they bring in."
EDI Holdings has now started with the ringfencing of current electricity distributors, a process which entails separating Eskom Distribution from the rest of Eskom and identifying and isolating municipal electricity distribution activities. This process will cover five main areas, explained De Beer, "finances, operations, human resources, legal and ownership separation".
"The process of ringfencing will help municipalities to determine the value of their assets," said Leshabane.
According to Leshabane, there has been no explicit resistance to the restructuring process, as municipalities had been able to raise their concerns openly and reach an amicable solution.
EDI Holdings has now embarked on an aggressive campaign to get municipalities to sign the accession agreement, according to De Beer. The Mangaung City Council, the Motheo District Council, and the Tzaneen municipality have already signed the agreement, he added.
De Beer anticipates that the first RED will become operational towards the end of 2005, a target Leshabane describes as reasonable. "This has been a consultative process. If we identify blockages along the way, we can respond to those as they arise," said Leshabane confidently. Once all six REDs are set up, the role of EDI Holdings will be to monitor and support them until the company is disbanded in 2008.
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