Power play

The Reds are com­ing

Finweek English Edition - - Economic trends & analysis - TROYE LUND

THE THE­ATRI­CAL POL­I­TICK­ING be­tween the ANC and DA around plans to re­struc­ture the coun­try’s elec­tric­ity re­dis­tri­bu­tion net­work is about to step up a notch – na­tional Gov­ern­ment is hatch­ing a plan to force mu­nic­i­pal­i­ties such as the DA-led Cape Town to play ball.

Cape Town City Coun­cil (CTCC) is cry­ing foul about Cabi­net’s latest change of heart over the num­ber of re­gional elec­tric­ity dis­trib­u­tors (Reds), which are sup­posed to con­sol­i­date elec­tric­ity sup­ply and stan­dard­ise tar­iffs. There’ll now be six Reds and they’ll be pub­lic rather than mu­nic­i­pal en­ti­ties into which mu­nic­i­pal­i­ties and Eskom will have to trans­fer their lu­cra­tive elec­tric­ity dis­tri­bu­tion busi­ness and staff.

At the mo­ment, mu­nic­i­pal­i­ties don’t have to go along with the Reds sys­tem. They can opt to keep on dis­tribut­ing their own elec­tric­ity. But, a new span­ner will soon be thrown into the works when the De­part­ment of Min­er­als and En­ergy (DME) in­tro­duces leg­is­la­tion that’s ex­pected to try and force mu­nic­i­pal­i­ties to hand over their lu­cra­tive elec­tric­ity dis­tri­bu­tion net­works to the Reds. If this doesn’t work, the other op­tion is amend­ing the Con­sti­tu­tion.

Ob­jec­tions to this aside, what this is­sue has un­der­scored is how much of a life­line elec­tric­ity has be­come for mu­nic­i­pal­i­ties – be­cause of their lim­ited abil­ity to raise taxes.

To counter what’s seen as a threat to this life­line and a threat to mu­nic­i­pal in­de­pen­dence, the CTCC now wants to kill the Red1 pilot project. This de­ci­sion was made af­ter Cabi­net’s re­cent about-turn on who will con­trol the Reds – as pub­lic en­ti­ties they’ll now an­swer to Par­lia­ment not mu­nic­i­pal­i­ties.

ANC-led mu­nic­i­pal­i­ties such as the Nelson Man­dela Metro (Port El­iz­a­beth) are less vo­cif­er­ous about this but are seek­ing le­gal ad­vice and have cau­tioned Par­lia­ment on the im­pli­ca­tions of this shift.

CTCC’s le­gal opin­ion is that mu­nic­i­pal­i­ties have a right to dis­trib­ute elec­tric­ity and ask­ing them to hand over this func­tion is un­con­sti­tu­tional.

While the ANC is threat­en­ing to change the Con­sti­tu­tion if all other at­tempts fail to get the Red sys­tem up and run­ning, the ques­tion is how mu­nic­i­pal­i­ties are go­ing to be com­pen­sated and whether the plan will re­ally strip them of key pow­ers.

Af­ter buy­ing the elec­tric­ity from Eskom, mu­nic­i­pal­i­ties add on their retic­u­la­tion costs as well as a sur­charge that sub­sidises other coun­cil ser­vices. CTCC, for ex­am­ple, has a 10% sur­charge, which adds R400m to its pot each year. Some mu­nic­i­pal­i­ties, es­pe­cially the smaller and poorer ones, slap on sur­charges of up to 40%, which is why there are hun­dreds of dif­fer­ent elec­tric­ity tar­iffs and why elec­tric­ity in the poor­est ar­eas can be the most ex­pen­sive. Added to this prob­lem is that mu­nic­i­pal­i­ties have not been us­ing any of the ex­tra cash to main­tain and up­grade their elec­tric­ity dis­tri­bu­tion sys­tems.

CTCC’s Ian Neil­son (DA) says: “ Elec­tric­ity has been and re­mains the only source of in­come (for lo­cal g ov e r n m e n t ) that’s strongly linked to eco­nomic growth. Elec­tric­ity is the key means by which lo­cal gov­ern­ment de­rives re­turns on other in­vest­ments (money that must be ploughed into in­fra­struc­ture and into ad­her­ing to stan­dards for ser­vices like wa­ter sup­ply and solid waste man­age­ment). Tak­ing it (elec­tric­ity sup­ply) away will have a sig­nif­i­cant ef­fect.”

The CEO of Elec­tric­ity Dis­tri­bu­tion In­dus­try Hold­ings, Phindile Nz­i­mande, dis­misses this ar­gu­ment. She says mu­nic­i­pal­i­ties will be com­pen­sated for lost in­come un­til they are able to make it up else­where.

While Neil­son says there’s no clar­ity or cer­tainty on how this is go­ing to hap­pen or where this com­pen­sa­tion is go­ing to come from, op­po­si­tion party MPs on Par­lia­ment’s min­er­als and en­ergy port­fo­lio com­mit­tee agree it’s un­der­stand­able that Cape Town is re­fus­ing to hand over any­thing un­til there’s clar­ity in what’s been a “woolly” process.

While Min­is­ter of Min­er­als and En­ergy Buyelwa Son­jica wasn’t in the coun­try to com­ment, of­fi­cials in her de­part­ment con­ceded that the process hadn’t been as clear or as fast as they’d hoped, but said na­tional Gov­ern­ment was not about to throw lo­cal gov­ern­ment into more dis­ar­ray.

For Neil­son, how­ever, it’s about more than just money. He says that tak­ing away con­trol of the Reds from mu­nic­i­pal­i­ties strips them of their right to be in charge of where and how the city grows and de­vel­ops (elec­tri­fi­ca­tion be­ing in­ex­tri­ca­bly linked to this).

“What hap­pens if this pub­lic util­ity (Red) won’t give the city fi­nance to de­velop and ex­pand in the ar­eas the city gov­ern­ment wants?” asks Niel­son, who stresses that mu­nic­i­pal­i­ties must have full con­trol over Reds and who heads them.

Neil­son’s com­ments are made more pointed by the fact that the man in charge of the Cape’s Red1 is Saleem Mowzer, an ar­dent DA critic, who was a se­nior mem­ber of the city’s ANC gov­ern­ment be­fore the DA took con­trol last year.

Sarah Hether­ing­ton, ed­i­tor of lo­cal gov­ern­ment spe­cial­ist pub­li­ca­tion De­liv­ery, says Neil­son’s de­vel­op­ment con­cerns re­flect too nar­row a view.

Critic of the DA. Saleem Mowzer

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