DEPARTMENT OF MINERALS AND ENERGY Parliamentary Portfolio Committee Briefing in respect of ELECTRICITY BASIC SERVICES SUPPORT TARIFF (EBSST) 06 SEPTEMBER 2001 DAVID MAHUMA

ELECTRICITY BASIC SERVICES SUPPORT TARIFFS Government Policy on EBSST Energy Sources Considered Cabinet Approval of February 2001 EBSST Pilot Funding Cost and Benefits of EBSST Capacity of EBSST Municipal Initiatives Status of EBSST in Local Authorities DME pilot framework Identified Pilot Sites Cost Implications of 8 Piloting Cost Implications of 2 Energy Efficiency Pilots Cost Implications of Full Implementation Time Frame for DME Process Inter-Departmental Committee on Pilot Funding Link between EDI and EBSST EDI Timetable Conclusion

GOVERNMENT POLICY ON FREE BASIC SERVICES Government announced policy of free basic services to all during the fourth quarter of 2000.

ENERGY SOURCES CONSIDERED AND APPROVED ParaffinVAT zero rated Electricity –grid50 kWh free with stepped tariffs –non-girdfree access to the capacity of system

CABINET APPROVAL OF FEBRUARY 2001 Provision of free basic electricity to domestic sector (grid & non-grid); Pilot EBSST in 2001 Consolidated outcomes of pilot and final recommendations to Cabinet early in 2002 Commence phased implementation from the 2002/2003 after Cabinet approval

EBSST PILOT FUNDING The following funding proposals were made: –Grid electricity pilots from cross subsidisation –non-grid electricity from Equitable Share allocation

COST AND BENEFITS OF THE EBSST Grid Electricity –Household connected to grid R0.30 per kWh) saves R180.00/a –Excess consumption payable by consumer Non-grid Electrification –Household connection to non-grid (R40/m Operation &Maintenance) saves R480.00/a –excess O&M payable by consumer

CAPACITY OF EBSST ALLOCATIONS 50kWh can enable the following benefits: –access to lighting –basic access to media (TV and radio) –basic water heating with electric kettle –basic ironing 50W p Non grid Solar Home Systems –access to basic lighting –basic access to media (TV (b&w) and radio)

MUNICIPAL INITIATIVES Cabinet directive interpreted as meaning immediate implementation of EBSST policy; Many municipalities outside the above target nodal areas announced EBSST implementation by 1 July 2001 in line with free basic water provision; Such municipalities are funding EBSST and free water from internal funding.

STATUS OF EBSST WITHIN LOCAL AUTHORITIES Some Metro’s started to implement EBSST; Pressure on Eskom to provide the same to customers within Metro boundaries; Cape Town, Ekurhuleni, Pietersburg and Tshwane have already implemented EBSST to their customers; Eskom initiated discussions with Metros to investigate an integrated approach regarding phased introduction of free basic electricity to Eskom customers within Metro boundaries; Special Task Team created between Eskom, DME and City Power to consider options for Johannesburg Metro; No breakthrough due to funding consideration.

DME PILOT FRAMEWORK Pilot projects intended to commence in July Focus on 13 identified developmental nodes and selected urban renewal areas Lessons to be drawn from selection of municipalities already commenced with some own free basic services. There is a need for balance and control of variables in pilot studies. Eskom and SALGA requested to assist the DME with the EBSST pilots during 2001.

IDENTIFIED PILOT SITES PILOT SITESAREA&PROVINCE GeseseHothsazel, Northern Cape AntiochIxopo, Eastern Cape GaragopolaPietersburg (Penge), Northern Province. TamboNear Queenstown, Eastern Cape Makhutsu Northern Province MarapongNorthern Province MakiepsvleiGroblersdal Mathopestad North West Energy Efficient Lighting Sites ZwelitshaE.Cape Dengwane E.Cape

IDENTIFIED PILOT SITES (CONT’D) All nodal areas fall within Eskom area of supply; Eskom has already commenced work in pilot sites to set up pilot projects since June 2001 (as requested by DME); First pilot launched in Northern Cape during September 2001; Other pilots announces when initiated; Interim report by December 2001 and Final report by end February 2002 Pilot funding required

COST IMPLICATIONS OF 8 MONTHS PILOTING 8 pilot sites identified (DME Funding) –EDRC involvement (Social aspects of the EBSST) Issues –Change of Vending Systems –Link of Billing System to Financial system Cost: R24m –Implementation Costs R9,5m –Revenue Shortfall (Energy cost-Grid) R5m –Operation and Maintenance ( Non-grid)R2.1m –Communication Cost R5m –Project Management R2.5m

COST IMPLICATIONS OF 2 ENERGY EFFICIENCY PILOTs 2 Energy Efficiency pilot sites –Zwelitsha (Eastern Cape) –Dengane (Eastern Cape) Total Project Cost R1m Funding :Eskom and World Bank

COST IMPLICATIONS OF FULL SCALE FREE BASIC ELECTRICITY Annual energy cost R1.2 bn Meter replacement and vending system upgradesR0.6 bn –(excluding cross subsidisation through tariff adjustments) Total costR1.8 bn

TIME FRAME FOR DME PROCESS Preparatory work:June 2001 Implementation (dispensing): September 2001 Cabinet Recommendations: February 2002 Phased EBSST rollout:April 2001 REDs and Local Government will be responsible for the EBSST Implementation

INTER-DEPARTMENTAL COMMITTEE ON EBSST ON PILOT FINDING Comprised National Treasury and DME officials Recommended –Finance Minister’s support to –R24m fiscus allocation –usage of NEF as bridging finance –Consideration by Treasury Committee No guarantees to date in terms of EBSST pilot funding; Awaiting Treasury Committee sitting towards end of September 2001; DME is looking at possible alternatives.

LINK BETWEEN EBSST AND EDI RESTRUCTURING Objectives of the EDI Restructuring –Address industry fragmentation –Address local government bulk debt –Enhance financial viability of industry –Enhance equity and quality of service –Facilitate government priorities redress past imbalances I.t.o. service provision Universal access to electricity EBSST Socio-economic development poverty alleviation

EDI TIME TABLE Establishment of Holding July company Sept 2001 Ring fencing of distributionSept businessDec 2002 REDs establishment Jan Dec 2004

CONCLUSION EBSST is quite an involved process; Solutions to funding (pilots and phased implementation in interim period) should be found soon; Cross-subsidisation will commence in 2003/2004 financial year; There is a need to clarify the the role of Equitable Share in provision of future free basic services.

THANK YOU QUESTIONS AND ANSWERS