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Dr Willem J. De Beer, Chief Operations Officer, EDI Holdings (Pty) Ltd,
South Africa 23November 2010
“The process of dealing with the EDI maintenance backlog:
Can we catch up? ”
Electricity Supply Chain
Transmission LinesGENERATION
TRANSMISSION (765/400/275 kV)
TRANSMISSION
SUBSTATION
DISTRIBUTION (132/88/66/44/33 kV)
MV Lines 22 and 11kV
Reticulation Lines & Cables
DISTRIBUTION
SUBSTATION
Distribution Lines (HV Lines & Cables)
LV Lines 380/220VSERVICE
CONNECTION
ELECTRICITY DISTRIBUTION INDUSTRY (EDI) FOCUS
Electricity sold (%Y/Y) and real GDP
Source: Statistics South Africa, EskomData as at September 2010
% y/y
Price and Economic Growth Projections
Source: Eskom, Stats SA, RMB FICC Research Data as at September 2010
Index
127%
18%
Electricity Demand
Source: RMB FICC Research, University of PretoriaData as at September 2010
% y/y
Eskom ’s Reserve Margin
Source: EskomData as at September 2010
An Update on Eskom ’s Build Project
Source: EskomData as at September 2010
mw
Electricity Demand and Supply Projections
Source: Eskom, FICC ResearchData as at September 2010
‘000
MW
h
Electricity Distribution Industry (EDI) Profile
• Revenue : ~ R40 bn
• Customers : ~9.2 m
• Staff : ~31 000
• Replacement Asset Value (2008) : ~R260 bn
• Energy Purchases (ESI-2008) : ~224 TWh
• Energy purchases (EDI-2008) : ~120 TWh
• Distribution Lines : >400 000 km
• Distribution Cables : >210 000 km
EDI Insights• Maintenance plans and implementation thereof is not evident in most municipalities’
electricity departments.
• Maintenance investment is not consistent or in line with NERSA recommendations.
• Average age of asset base 45 yrs.
• Capital investment plans are not clearly defined on a consistent basis.
• Capital investment is < 5% of actual revenue from electricity in a large percentage
of municipalities.
• In terms of electricity, municipalities on average achieved approximately 47% of
their total electricity budgeted capital investment.
• Approximately 1000 constrained feeders in Eskom Distribution which cannot
accommodate more load.
• Recruitment, training and retention of skills are significant EDI sustainability risks.
• Ability to continue to provide reliable and affordable electricity at risk.
• The pockets of good performance are decreasing.
EDI Challenges in Context• The EDI is currently generating revenue however the business model is not
sustainable
• The EDI in South Africa is currently experiencing significant challenges as a result
of amongst others;– Under investment in asset maintenance
– Lack of refurbishment investment
– Under performing industry– Shortage of skills
• Maintenance, refurbishment & strengthening backlog ~ R27.4bn (2008)
• An additional ~R2.5bn / annum maintenance and refurbishment required• In general the current practices in the EDI do no guarantee for business
sustainability and economic growth
• Supply chain process within most municipalities does not support accelerated implementation of projects and procurement turn around times
• While there are pockets of good performance; to avoid a collapse of the EDI it is
essential for an urgent structured intervention• The increased operation of under maintained plant is a recipe for disaster
Slide 12
In addition to the lack of investment in generating capacity, the South African electricity
distribution network is (according to industry experts) also in a state of critical under-
investment. Eskom is responsible for 95% of generation and 100% of transmission.
Distribution, however, is owned about 50-50 between Eskom itself and the “munics”
(municipality-owned distribution companies). As a rule of thumb, distribution
companies should be investing at a rate of about 10% of asset value per year.
However, for a number of reasons beyond the scope of this report, investment rates in
many (especially non-Eskom) distribution companies are as low as 1-2% per year.
Thus, while much of the focus has been on generating capacity, a major threat to
efficient energy supply is distribution.
UBS Investment Research – March 2008
Slide 13
Maintenance Spent vs. Actual Revenue
Source: Ringfenced Financial Statements
Type 6Type 5Type 4Type 3
Type 1
Actual Maintenance Spend vs. NERSA & International Guideline Maintenance Spend
Source: Ringfenced Financial Statements
Source: Relevant Department Listing & HR Close-out Reports, Critical Skills Report
Electricity Skills as a % of Total Vacancies
* - No data
** - No comprehensive vacancy data
*** - All Contractors
Type 6Type 5Type 4Type 3Type 1
Outage Management
Municipality No. of Outages (Monthly) Average downtime per
disruption
# 3 0 (Planned)
20 (Unplanned)3 hrs to 1 week
# 520 (Planned)
30 (Unplanned)
Planned – < 8 hours
Unplanned – < 1 hour
# 116 (Planned)
6 (Unplanned)6 – 48 hours
# 14 8 (Planned)
150 (Unplanned)Not available
# 191 (Planned)
3 (Unplanned)½ hour
# 21 2 1 Hour
# 22 Not available Not available
# 231 (Planned)
2 (Unplanned)2-3 Hours
# 244 (Planned)
9 (Unplanned)3 hours
From research conducted,
unplanned outages mainly occur
due to assets not being well
maintained and lack of capacity to
perform preventative maintenance.
A policy of reactive maintenance is
adopted (rather then preventative
maintenance) as planned
maintenance does not exist in most
municipalities .
Skills shortage and key resource
vacancies a key driver of outages.
Maintenance plans do not exist in
over 50% of the municipalities
researched.
Key Points
Source: Close – Out Annexure Documents
Entity Total Backlog Maintenance RefurbishmentShort term
Strengthening
RED ONE (City of Cape Town) R 3,851,578,245 R 385,157,825 R 1,155,473,4 74 R 2,310,946,947
RED TWO (Ekurhuleni) R 5,132,373,764 R 513,237,376 R 1,539,712 ,129 R 3,079,424,259
RED THREE (Nelson Mandela Bay) R 2,186,296,025 R 218,629,602 R 655,888,807 R 1,311,777,615
RED FOUR (City of Johannesburg) R 6,413,148,398 R 641,314,840 R 1,923,94 4,519 R 3,847,889,039
RED FIVE (eThekwini) R 4,158,350,649 R 415,835,065 R 1,247 ,505,195 R 2,495,010,389
RED SIX (Tshwane) R 5,627,399,914 R 562,739,991 R 1,688,21 9,974 R 3,376,439,948
Total R 27,369,146,995 R 2,736,914,699 R 8,210,744,098 R 16,421,488,197
National Picture - EDI Infrastructure Investment Backlog / RED Region (2008)
Investment Reality• A limited number of municipalities are increasing their investment in the assets
• Municipal Infrastructure Grant (MIG) 2009/10
– 4% of municipalities failed to spend any of their MIG allocation
– 15% of municipalities spent less than half of their MIG allocation
– 37% of all municipalities spent all of their MIG allocation
– ~R2bn is “lying” in municipal bank accounts rather than invested in the assets
• Eskom Distribution
– Additional R1.4bn per annum over next 10 years to ensure that backlog does
not increase
– Strengthening expenditure expect to increase from R3.1bn to R5.4bn in next 5
years
– Refurbishment to increase from R1.5bn to R2.3bn per annum over next 5 years.
Funding the Required Asset Investment
• Improved business performance and efficiencies e.g. address technical and
non-technical losses:
– Eskom (2009/10) - Non technical losses account for 4.3TWh (R1.2bn)
per annum (2.3%)
– Total EDI non technical losses ~ R6,5bn per annum
• Redirect the MIG allocation
• Tariff adjustment
• Grant funding
• Hybrid of the above options
EDI Maintenance Backlog: Can we catch up? ”
• Yes !!!! On condition that:
– Political championship for the asset turn around strategy be addressed
– Approach to Distribution Asset Management (ADAM) plan be adopted as
the turnaround framework
– The funding requirement be addressed
– Dedicated resources be appointed to drive ADAM as a national
integrated solution
– Utility resources be complement to ensure a balanced “day to day”
operational focus and ADAM roll out
Conclusion
• The asset management in the EDI requires an integrated and holistic
approach.
• Accountable and competent leadership is required.
• The attitude towards asset management, inclusive of investment in assets,
must change.
• Tighter regulation of the EDI is required
• There is a compelling case for the EDI reform and it is essential that the
RED establishment programme be accelerated in the interest of the
customers, the economy, business stability and current employees.
THANK YOUTHANK YOU
www.ediholdings.co.za