Funding plan on table for upkeep of power grid

The Department of Energy is proposing a new model to fund the backlog of electricity infrastructure maintenance and refurbishment, which is estimated at about R70bn.

The new model recognises that in the light of the constraints on the fiscus no additional funding from this source will be forthcoming and nor are tariff increases a viable option.

Thabang Audat, the department’s director of electricity supply, said in briefing Parliament’s energy committee on Tuesday that the maintenance backlog was deteriorating and not being addressed by electricity distribution operators.

Electricity distribution infrastructure was on average 40years-old and a sustainable funding model to maintain and refurbish it was required.

Grants from the state to municipalities were not effective as the funds were used for other purposes other than maintenance and were also intended to be used for social infrastructure. The most practical funding solution Audat proposed was a central loan facility — with loans coming from development finance institutions such as the Development Bank of Southern Africa, the Public Investment Corporation, Industrial Development Corporation and global lenders — which would be provided with a revenue guarantee. During discussions with potential lenders, it emerged that they wanted guarantees for repayment of the capital, and regulatory certainty as conditions of granting loans, he said.

Some of the electricity revenue would have to be ringfenced to repay these loans.

Audat noted that there was already an allocation made by the National Energy Regulator of SA (Nersa) of 5%-8% of the approved tariff that was supposed to be ring-fenced for maintenance of infrastructure — so there was funding in the system. This 5%-8% would be used to repay the loans and would be deposited into a newly created national consolidated account.

The department wanted to obtain approval for the funding model and planned to establish a steering committee to spearhead the process, Audat said.

Nersa officials told MPs that, in fact, less than the 6% that Nersa required to be ring-fenced for maintenance and repairs was spent on this.

Eskom officials said the utility planned to invest R37.7bn in 2017-18 and 2021-22 on the distribution network, including refurbishment of infrastructure and new electrification.

But a critical challenge remained the unpaid debt of about R11bn at the end of July.

The top 10 municipalities owed R7.3bn, the top 20, R8.7bn and 69 municipalities owed more than R10m.