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South Africa: Rewiring Electricity

Government attempts to inject some efficiency and order into the way the country's electricity is distributed to homes and businesses have, once again, met with a storm of protest.

This time the outcry is over the Electricity Regulation Amendment Bill, which seeks to change the way distribution of electricity is regulated.

The bill proposes stripping the National Energy Regulator of SA (Nersa) of several regulatory functions, notably the power to set or approve electricity prices for smaller users, and gives it rather to municipalities under the guidance of the minerals and energy minister. Seldom have objections to a bill been so universal.

The bill is ill-considered and impractical. It could even do the exact opposite of what it intends: lowering electricity prices, improving quality of supply and harmonising tariffs. The very rationale for the bill is questionable, and seems designed more to placate municipalities than achieve the broader aims of overhauling the industry.

The restructuring has been under way for so long and undergone so many changes it seems the original goals have been lost in the political horse trading needed to get the process finished. The politics of the issue took on a new dimension recently, when the cabinet overruled Parliament by altering (an already altered) plan to set up six metro distributors and added a seventh distributor -- a move that earned the cabinet some sharp words from, among others, the minerals and energy parliamentary committee.

In the midst of this heat, it's worth considering why government wanted to reshape the sector in the first place. In 1994 it inherited a highly dysfunctional system. Moving electricity from the power grid to homes, industry and businesses was spread across hundreds of distributors. Some consumers received electricity directly from Eskom, others through municipalities. Each charged a different tariff. With many of the smaller municipalities cash-strapped, investment in refurbishing or upgrading assets was patchy -- part of the reason for the spate of blackouts around SA.

Several municipal restructuring exercises have failed to make a dent in the problem and the industry continues to be understaffed, with patchy service levels. The original idea was to merge distribution of municipalities and Eskom into well-resourced regional electricity distributors. But municipalities resisted, as they earn vital revenue from selling electricity, and the constitution is on their side. So government changed its plan, proposing that only the six big metros merge with Eskom distribution. Then the cabinet changed it again.

The restructuring exercise has become a political football, changed at a whim to appease aggrieved parties. The Regulation Bill is just the latest example, and it needs to be stopped in its tracks. Giving municipalities the power to regulate themselves under the guidance of the minister is not the solution -- electricity networks in SA are monopolies and need to be overseen by an independent regulator.

If it is impossible for government to get political buy-in to its original restructuring plan, it needs to come up with a compromise that does not endanger this country's economic health. One such option would be to let Eskom and strong, well- resourced municipalities go on distributing power. Distributors that are failing and cannot deliver quality service should have their licences taken away. They could be subsidised or merged in a new entity. A single, transparent pricing structure, overseen by Nersa, should apply to all power distributors.

After more than a decade of trying, it seems obvious government cannot forge consensus on the reshape. Let's stop trying to come up with increasingly damaging compromises and find a workable solution.

Additional information:
News date: 12/10/2006

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