CITY'S ELECTRICITY SYSTEM IN FOR A SHOCK
by David McDonald, Cape Argus, 11 January 2005
PLEASE NOTE: Readers wanting to reproduce and reference this article should contact Cape Argus
Plans are afoot to fundamentally change the way electricity is supplied to Cape Town - by July. Canadian academic Dr David McDonald argues that this has important implications for everyone in the city, and that we need to understand these implications before we're faced with a done deal.
Have you heard about the plans to turn Cape Town 's electricity system into a regional electricity distributor (RED) starting in July?
If not, you're not alone. Many Capetonians have no idea what the RED system is all about or that Cape Town has been earmarked as the first test site for this nation-wide restructuring of electricity distribution.
The introduction of the REDs marks what is arguably the most significant thing to happen to the electricity sector since the service was introduced in this city over a century ago.
However, there has been virtually no public debate on the matter and the city has not provided information about REDs that is readily accessible to the residents.
Nevertheless, the council wants to hear your opinions about the REDs - and by January 24.
So put down your boerewors and pick up your reading glasses. Here is a quick primer on some of the key issues at stake in this massive institutional change.
First the good news. The introduction of six regional electricity distributors across the country will help to rationalise what has been a very fragmented service in South Africa .
There are currently 187 municipalities, plus state-owned Eskom, distributing and selling electricity, and this has created considerable inefficiencies and irregularities.
Economies of scale with respect to billing, servicing, cross-subsidisation and infrastructure investments can be realised through a more centralised organisational system and can help to cross-subsidise poor, predominantly rural, areas in a more systematic way.
The REDs can also help to rationalise electricity rates. Consumers pay significantly different rates in different parts of the country - even within municipalities - and the rural poor tend to pay the highest rates of all.
There are also enormous differences between the rates that industry pays and the rates that households pay. Large industrial consumers pay as little as 5c per kilowatt hour (the cheapest industrial rates in the world) while households pay as much as 49c/kwh. (In Cape Town , industry pays 8c/kwh while households pay up to 44c/kwh.)
The quality of service also varies considerably across the country and there are concerns with different terms of employment and different health and safety systems for electricity workers in what can be an extremely dangerous occupation.
The introduction of REDs will not eliminate all of these problems, and it will take time to standardise services, but the changes could go a long way towards better equity in pricing and in ensuring that resources are in place for the roll out of electricity to the millions of people still without power.
There are, however, many troubling questions. The first has to do with financial compensation.
l Many municipalities, Cape Town included, earn an enormous surplus from the sale of electricity to their residents. These funds are used to cross-subsidise services that would not otherwise be able to pay their own way, such as libraries and parks.
In Cape Town , the city earns a surplus of about R1 billion a year from electricity sales - almost 10% of its operating budget. What will happen to this surplus under REDs? There have been promises from national government that these revenue streams will be reimbursed, but there are no details yet as to what this compensation scheme might look like, how far into the future it might run, or how it might affect capital spending.
l A second problem is that the management of the Cape Town 's electricity system will be handed over to the national body governing the REDs (the Electricity Distribution Industry or EDI). All city employees working in the electricity department, and all related equipment and resources, will be "ringfenced" out of the City of Cape Town and set up as an independent "business unit" under the auspices of the Electricity Distribution Industry.
It is not clear what authority, if any, the City of Cape Town will have in the future decision-making of this RED. Will the city be involved in decisions about tariffs for the poor? Can residents of Cape Town decide what the city's priorities should be for electricity infrastructure investment? It is not clear where things stand on these matters.
l A third, and related point, has to do with the ideological shift associated with the REDs restructuring. Ringfencing (or corporatisation as it is more commonly known) creates a new kind of management ethos. Rather than decisions being made as part of a municipal whole, corporatised business units think much more narrowly about their own narrow financial bottom line, with managers typically being paid and evaluated according to their organisation's financial performance.
Although publicly owned and operated, these corporatised entities act like private companies, with little incentive to think about the broader social and economic implications of their decisions. The fact that Cape Town 's RED will also have to compete with REDs in other parts of the country will make this focus on the financial bottom line all the more central to its decision-making process.
In this drive to be profitable, might we see more electricity cutoffs to the poor who cannot afford to pay? Might we see job losses in an attempt to make the RED more competitive?
Again, it is not clear where things stand. But words of warning from the Chief Financial Officer of the Electricity Distribution Industry are ominous: "[The introduction of REDs] will come with lots of pain. Efficiencies need strong medicines. I am grateful that we have a government prepared to bite the bullet and take unpopular decisions in the short term for long term benefits."
There are also concerns about the outright privatisation of the REDs once they are up and running. Eskom has already stated that shareholding in the REDs will eventually be broadened to the private sector. The Electricity Distribution Industry, for its part, says that the REDs are intended to "become world-class assets that international investors may be interested in venturing into". Will Cape Town 's RED be sold off to a private company in the future?
Finally, what are we to make of the procedural flaws associated with the introduction of REDs in Cape Town ? Calling for public comment while people are on their summer holidays - the City put an advert in Cape Town newspapers on December 13, after the school holidays had begun, and called for comment by yesterday, although this has now been extended to January 24 - hardly constitutes public engagement, particularly when the national government wants Cape Town's RED to be up and running in six months.
But the City of Cape Town cannot be blamed entirely. A culture of non-engagement on this issue has been established at the national level, with the Electricity Distribution Industry trying to get an exemption on Section 78 of the Municipal Systems Act. This section requires municipalities to consult with communities and organised labour about major service restructuring initiatives such as the REDs.
The Electricity Distribution Industry's "gripe" with Section 78 is that "it is time consuming and costly" and the organisation is therefore lobbying the Minister of Energy and Minerals to allow REDs to be introduced without these consultations. Why "spend time and money on a project that everyone agrees with", asks EDI in its October newsletter, "merely to comply with legislation that is a process all concerned with would prefer to pass?"
Why indeed? With electricity being one of the most important constitutionally-mandated responsibilities of local government, critical to a "better life for all", and with corporatisation and privatisation of electricity a highly controversial matter in South Africa and internationally, surely the government has a responsibility to create informed debate on the matter.
This is why Section 78 was created in the first place.
Contact your councillors and ask for their opinions on REDs. Better yet, ask them to provide you with information about the REDs so you can form your own opinion. There is a great deal at stake.
Dr David McDonald is co-director of the Municipal Services Project. He is also associate professor of the department of geography at Queen's University, in Ontario , Canada . His most recent book, edited with Greg Ruiters, is The Age of Commodity: Water Privatisation in Southern Africa (Earthscan Press), and will be available later this month.
A report containing public input will go before the City of Cape Town 's full council meeting on January 31. Saleem Mowzer, member of the mayoral committee for trading services, says the decision reached then will be subject to a further consultative process with communities and labour.
Send your comments on the Reds plan to , or to local councillors before January 24. More information is obtainable from a pressure group called Electricity4All, which is opposed to the Reds system. They can be reached at the website