NERSA HEARINGS 20 JANUARY 2010

The Institute for The Institute for Municipal Finance ExcellenceMunicipal Finance Excellencewww.imfo.co.zawww.imfo.co.za

NERSA HEARINGSNERSA HEARINGS2020 JANUARY 2010 JANUARY 2010

Eskom’s Revised Revenue Application Eskom’s Revised Revenue Application

MYPD 2010/11 – 2012/13 (MYPD 2) MYPD 2010/11 – 2012/13 (MYPD 2)

Presented ByPresented By: Louise Muller & Goosain Abrahams: Louise Muller & Goosain Abrahams

Institute of Municipal Finance OfficersInstitute of Municipal Finance Officers


IMFO is the recognised professional bodyIMFO is the recognised professional body

for the development and promotion offor the development and promotion of

Municipal Finance Officers and LocalMunicipal Finance Officers and Local

Government FinanceGovernment Finance

Established in 1929 – just celebrated 8080 Years of Municipal Finance Excellence


Role of IMFO at NERSA HearingRole of IMFO at NERSA Hearing

IMFO IMFO is presenting from the view of:is presenting from the view of:The financial relationship between the The financial relationship between the

municipality (Electricity Department) and the municipality (Electricity Department) and the consumer (reticulation & distribution) consumer (reticulation & distribution)

andandThe financial arrangement between The financial arrangement between

municipalities and Eskom (bulk purchases)municipalities and Eskom (bulk purchases)


Overview of PresentationOverview of Presentation

General Comments General Comments on the Revised Eskom on the Revised Eskom

Revenue Application – MYPD 2Revenue Application – MYPD 2

Local Government FinancesLocal Government Finances

RecommendationsRecommendations

The Institute for The Institute for Municipal Finance ExcellenceMunicipal Finance Excellence

GENERAL COMMENTS ON MYPD 2GENERAL COMMENTS ON MYPD 2

www.imfo.co.zawww.imfo.co.za


General Comments on MYPD 2General Comments on MYPD 2

A robust economic assessment of the impact of A robust economic assessment of the impact of the proposed tariff increases on macroeconomic the proposed tariff increases on macroeconomic policy objectives would add value and credibility policy objectives would add value and credibility to the Eskom submission to the Eskom submission

Transparency on efficiency measures introduced Transparency on efficiency measures introduced and cost saving mechanisms put in place by and cost saving mechanisms put in place by EskomEskom



General Comments on MYPD 2General Comments on MYPD 2(2)(2)

Government as a whole and NERSA, as the Government as a whole and NERSA, as the National ENERGY Regulator, should be setting National ENERGY Regulator, should be setting the Energy Framework for South Africathe Energy Framework for South Africa

The 3 year MYPD 2 should not be open to change The 3 year MYPD 2 should not be open to change UNLESS to reduce the % increase to below the UNLESS to reduce the % increase to below the final level set by NERSAfinal level set by NERSA

The next 3-year MYPD submission must not be The next 3-year MYPD submission must not be left to the last minuteleft to the last minute



LOCAL GOVERNMENT FINANCESLOCAL GOVERNMENT FINANCES



Local Government FinancesLocal Government Finances

To adequately “protect” service delivery To adequately “protect” service delivery taking place to all:taking place to all:

Local Government must pay Eskom for bulk purchases

Out of the “affordable provision” of electricityWhile still providing equitable services

– Various different services (including electricity) Various different services (including electricity) – Various categories of usersVarious categories of users


Local Government FinancesLocal Government Finances(2)(2)

The CFO (obo Accounting Officer) must The CFO (obo Accounting Officer) must budget for realistically expected revenue*budget for realistically expected revenue*

1.1. Reduced Income – Reduced Income – from the current economic from the current economic climateclimate – affects service delivery – affects service delivery

2.2. Increased Bad Debts & Reduced Sales – due Increased Bad Debts & Reduced Sales – due to unemployment – causes a redirection of to unemployment – causes a redirection of funding to support increased indigent poolfunding to support increased indigent pool

* Section * Section 17(1)(a) of the Municipal Finance Management Act



IMFO IMFO welcomes the longer term clarity and welcomes the longer term clarity and stability the transparency of any multi-year stability the transparency of any multi-year

price determination can bringprice determination can bring

BUTBUT

There is still concern about the level of There is still concern about the level of increase and the ability of the economy to increase and the ability of the economy to

absorb the impactabsorb the impact



IF IF the economy cannot accommodate all the the economy cannot accommodate all the demands ….demands ….

No growth or negative economic growth

Potential increase in unemployment

Reduced demand for goods and services

Reduced revenue streams

Downward Downward SpiralSpiral



The Economic Impact of 3 increases of 35% have The Economic Impact of 3 increases of 35% have not been adequately explored and quantifiednot been adequately explored and quantified

Eskom’s submission is silent on the usual “claw-back” applied to local government to accommodate different financial years

Certainly the smaller businesses are going to be hardest hit – with significant economic impacts


RECOMMENDATIONS FROM IMFORECOMMENDATIONS FROM IMFO



IMFO RecommendationsIMFO Recommendations

LG has limited revenue raising powers – LG has limited revenue raising powers – the the complex balancing processes related to setting complex balancing processes related to setting tariffs and taxes must not be undermined and tariffs and taxes must not be undermined and cannot be compromised with a “CLAW-BACK”cannot be compromised with a “CLAW-BACK”

LG has significant social and developmental LG has significant social and developmental responsibility –responsibility – sufficient INDIGENT SUPPORT sufficient INDIGENT SUPPORT must be provided/available to limit any negative must be provided/available to limit any negative impact of increased prices on investment in impact of increased prices on investment in service deliveryservice delivery


IMFO RecommendationsIMFO Recommendations(2)(2)

LG has to provide projections to support the “outer LG has to provide projections to support the “outer years” of the budget process – years” of the budget process – provide some provide some certainty on the FUTURE TARIFF ADJUSTMENT certainty on the FUTURE TARIFF ADJUSTMENT REQUIREMENTS before end of current MYPD REQUIREMENTS before end of current MYPD period period

Smaller local economies are significantly impacted by Smaller local economies are significantly impacted by unexpected changes in prices – unexpected changes in prices – don’t accede to don’t accede to requests to open the MYPD unless REDUCING requests to open the MYPD unless REDUCING TARIFFSTARIFFS


IMFO RecommendationsIMFO Recommendations(3)(3)

National Government and NERSA need to set the National Government and NERSA need to set the Energy Policy Direction – Energy Policy Direction – boosting ALTERNATIVE boosting ALTERNATIVE / RENEWABLE ENERGY research, development / RENEWABLE ENERGY research, development and implementationand implementation

National Government and NERSA should be National Government and NERSA should be considering considering GENERATION STANDARDSGENERATION STANDARDS to to ensure certaintyensure certainty


THANK YOU

Documents

NERSA HEARINGS 20 JANUARY 2010