DEPARTMENT OF MINERALS AND ENERGY

Parliamentary Portfolio Committee

Briefing in respect of

ELECTRICITY BASIC SERVICES SUPPORT TARIFF (EBSST)

06 SEPTEMBER 2001

DAVID MAHUMA

ELECTRICITY BASIC SERVICES SUPPORT TARIFFS

• Government Policy on EBSST

• Energy Sources Considered• Cabinet Approval of

February 2001• EBSST Pilot Funding• Cost and Benefits of EBSST• Capacity of EBSST • Municipal Initiatives• Status of EBSST in Local

Authorities• DME pilot framework• Identified Pilot Sites

• Cost Implications of 8 Piloting

• Cost Implications of 2 Energy Efficiency Pilots

• Cost Implications of Full Implementation

• Time Frame for DME Process

• Inter-Departmental Committee on Pilot Funding

• Link between EDI and EBSST

• EDI Timetable

• Conclusion

GOVERNMENT POLICY ON FREE BASIC SERVICES

• Government announced policy of free basic services to all during the fourth quarter of 2000.

ENERGY SOURCES CONSIDERED AND APPROVED

• Paraffin VAT zero rated

• Electricity– grid 50 kWh free with

stepped tariffs– non-gird free access to the

capacity of system

CABINET APPROVAL OF FEBRUARY 2001

• Provision of free basic electricity to domestic sector (grid & non-grid);

• Pilot EBSST in 2001• Consolidated outcomes of pilot and final

recommendations to Cabinet early in 2002• Commence phased implementation from the

2002/2003 after Cabinet approval

EBSST PILOT FUNDING

• The following funding proposals were made: – Grid electricity pilots from cross

subsidisation

– non-grid electricity from Equitable Share allocation

COST AND BENEFITS OF THE EBSST

• Grid Electricity– Household connected to grid (50kWh @ R0.30

per kWh) saves R180.00/a– Excess consumption payable by consumer

Non-grid Electrification– Household connection to non-grid (R40/m

Operation &Maintenance) saves R480.00/a– excess O&M payable by consumer

CAPACITY OF EBSST ALLOCATIONS

• 50kWh can enable the following benefits:– access to lighting– basic access to media (TV and radio)– basic water heating with electric kettle– basic ironing

• 50Wp Non grid Solar Home Systems– access to basic lighting– basic access to media (TV (b&w) and radio)

MUNICIPAL INITIATIVES

• Cabinet directive interpreted as meaning immediate implementation of EBSST policy;

• Many municipalities outside the above target nodal areas announced EBSST implementation by 1 July 2001 in line with free basic water provision;

• Such municipalities are funding EBSST and free water from internal funding.

STATUS OF EBSST WITHIN LOCAL AUTHORITIES

• Some Metro’s started to implement EBSST;• Pressure on Eskom to provide the same to customers

within Metro boundaries; • Cape Town, Ekurhuleni, Pietersburg and Tshwane have

already implemented EBSST to their customers;• Eskom initiated discussions with Metros to investigate an

integrated approach regarding phased introduction of free basic electricity to Eskom customers within Metro boundaries;

• Special Task Team created between Eskom, DME and City Power to consider options for Johannesburg Metro;

• No breakthrough due to funding consideration.

DME PILOT FRAMEWORK

• Pilot projects intended to commence in July 2001. • Focus on 13 identified developmental nodes and

selected urban renewal areas• Lessons to be drawn from selection of

municipalities already commenced with some own free basic services .

• There is a need for balance and control of variables in pilot studies.

• Eskom and SALGA requested to assist the DME with the EBSST pilots during 2001.

IDENTIFIED PILOT SITES

• PILOT SITES AREA&PROVINCE

• Gesese Hothsazel, Northern Cape

• Antioch Ixopo, Eastern Cape

• Garagopola Pietersburg (Penge), Northern Province.

• Tambo Near Queenstown, Eastern Cape

• Makhutsu Northern Province

• Marapong Northern Province

• Makiepsvlei Groblersdal

• Mathopestad North West

•

• Energy Efficient Lighting Sites

• Zwelitsha E.Cape

• Dengwane E.Cape

IDENTIFIED PILOT SITES (CONT’D)

• All nodal areas fall within Eskom area of supply;

• Eskom has already commenced work in pilot sites to set up pilot projects since June 2001 (as requested by DME);

• First pilot launched in Northern Cape during September 2001;

• Other pilots announces when initiated;

• Interim report by December 2001 and Final report by end February 2002

• Pilot funding required

COST IMPLICATIONS OF 8 MONTHS PILOTING

• 8 pilot sites identified (DME Funding)– EDRC involvement (Social aspects of the EBSST)

• Issues– Change of Vending Systems– Link of Billing System to Financial system

• Cost: R24m – Implementation Costs R9,5m– Revenue Shortfall (Energy cost-Grid) R5m– Operation and Maintenance ( Non-grid) R2.1m– Communication Cost R5m– Project Management R2.5m

COST IMPLICATIONS OF 2 ENERGY EFFICIENCY PILOTs

• 2 Energy Efficiency pilot sites– Zwelitsha (Eastern Cape)– Dengane (Eastern Cape)

• Total Project Cost R1m Funding :Eskom and World Bank

COST IMPLICATIONS OF FULL SCALE FREE BASIC ELECTRICITY

• Annual energy cost R1.2 bn

• Meter replacement and vending system upgrades R0.6 bn

– (excluding cross subsidisation through tariff adjustments)

• Total cost R1.8 bn

TIME FRAME FOR DME PROCESS

• Preparatory work: June 2001• Implementation (dispensing): September 2001• Cabinet Recommendations: February 2002• Phased EBSST rollout: April 2001

• REDs and Local Government will be responsible for the EBSST Implementation

INTER-DEPARTMENTAL COMMITTEE ON EBSST ON PILOT FINDING

• Comprised National Treasury and DME officials

• Recommended

– Finance Minister’s support to

– R24m fiscus allocation

– usage of NEF as bridging finance

– Consideration by Treasury Committee

• No guarantees to date in terms of EBSST pilot funding;

• Awaiting Treasury Committee sitting towards end of September 2001;

• DME is looking at possible alternatives.

LINK BETWEEN EBSST AND EDI RESTRUCTURING

• Objectives of the EDI Restructuring– Address industry fragmentation– Address local government bulk debt– Enhance financial viability of industry– Enhance equity and quality of service

– Facilitate government priorities

• redress past imbalances I.t.o. service provision• Universal access to electricity• EBSST• Socio-economic development• poverty alleviation

EDI TIME TABLE

• Establishment of Holding July 2001- company Sept 2001

• Ring fencing of distribution Sept 2001- business Dec 2002

• REDs establishment Jan 2003-Dec 2004

CONCLUSION

• EBSST is quite an involved process;• Solutions to funding (pilots and phased

implementation in interim period) should be found soon;

• Cross-subsidisation will commence in 2003/2004 financial year;

• There is a need to clarify the the role of Equitable Share in provision of future free basic services.

THANK YOU

QUESTIONS AND ANSWERS