ISMO Bill Submission May 2012

Content Background, the energy crisis: How serious? Causes? Short-term solutions? Sustainable solutions? ISMO Bill DoE policy The Bill Recommendations

Background Energy crisis, how serious? Cost includes: Economic Developmental Social Psychological (subjective) Environmental Political

Background Energy crisis, how serious? R120bn in a single year Compounded forever (x2 in 10yrs, x4 in 20yrs, x8 in 30yrs) Does not include: Lost investment: jobs, growth, wealth Wasted resources: cutbacks, diesel, etc Dubious decisions; lack of expertise eg Duvha accident (uninvestigated)

Background Energy crisis, how serious? Over-runs – cost and completion Medupi – R46bn  R78bn  R146bn??? Mossel bay diesel OCGT plant baseload – running 24/7; x20 cost; imported fuel ‘Lights on’ now policy means deeper crisis later Absolute cap on growth, jobs, etc ie NGP, NDP, etc, impossible!

Background Implications: 15% of budget Housing for all (entire backlog; x2 RDP houses built since 1994) Clothing for all Entire road backlog and maintenance 25 mines (SA missed minerals boom; again?) 500,000 cars Schools, hospitals, investment, jobs …

Background Cause – policy failure; vacillation; ideology Solution – viable policy: Not more of the cause Demand predicted 1997 1998 White Paper – need for IPPs  DoE 2002, etc – Eskom can’t finance need, IPPs essential Contacts only in 2006 DoE & NDP – ISMO essential Global trends – unbundling, IPPs, competition

ISMO Bill Solution Could have been at no cost to government / society Long-term policy ISMO is essential first step Global scan – emulate winners: Developing: India, China, Brazil, Mauritius Developed: USA, EU, Australia Proper analysis eg California, India

ISMO Bill 14 years unresolved, why? Eskom resistance? Political will? Failed ideology? Solution: ISMO – single most important issue ISMO Bill welcomed, historic reform Pro-transformation, development, BEE Which model? (error means more failure).

ISMO Bill Solution: IPPs (viable, sustainable, diverse, substantial) Proven ISMO model (world’s experience) True independence (essential) Impossible without ownership Like roads, airports, harbours, etc Government or private? Not critical (sale would fund government and Eskom build) Electricity Act envisages competition and consumer choice

ISMO Bill Solution (most are constitutionally mandated): ISMO Bill needs Principles of Good Law Objective rules, criteria, certainty Genuinely independent grid (ownership essential) Free competition, level playing field, wheeling (Single buyer? Objectivity and transparency?) Regulate standards not market Rule of Law: No pseudo-court or discretionary power

ISMO Bill Solution Proper regulation: Create NERSA independence Clarify NERSA functions Possibility of political interference creates needless pressure and distortion (eg California blackout) ISMO to be regulated by NERSA Commission

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