1. COSATU NUM, NUMSA and SAMWU
Submission on the
Restructuring of the EDI:
Response to the 6+1 model
21 June 2006
Portfolio Committee on Minerals and Energy

2. Presentation Outline Introduction
COSATU’s perspective on the EDI Restructuring
COSATU’s position on the 6+1 model
Way-forward

3. Introduction
- EDI Restructuring is long overdue from the National Electricity Forum and RDP
- (2001) PriceWaterhouseCoopers Blueprint:
still no end-state vision ?
- (2003) EDI Restructuring Bill - withdrawn?
- (2004) Electricity Pricing Policy –
withdrawn?

4. Introduction, continues …
/5: “Policy Shift?”
Minister Alec Irwin – Budget Vote Speech; public sector-led investment in infrastructure; forging a “Developmental State” ?
- Yet:
the privatisation of mothballed generators (Kelvin, Grootvlei and Athlone power stations) continues
2005 Electricity Regulation Bill allowing for for concessions and privatisation

5. Introduction, continues …
The EDI Model leading to stand-alone and deregulated distribution sector, with competition
- The multinationals and the free trade lobby has targeted deregulation of ESI and EDI sectors in terms of the General Agreement on Trade in Services (GATS) – in the Hong Kong Round in December 2005

6. COSATU’s perspective on the EDI Restructuring
1 Overall objectives
- End fragmentation in the EDI: 187 licensed municipal distributors with more than 1000 different tariffs
- Create and leverage economies of scale – to ensure lower tariffs especially for small business, small manufacturers and the urban and rural poor

7. COSATU’s perspective on the EDI Restructuring, continues ….
- Redress disparities by facilitating skills transfer and leveraging existing infrastructure for the benefit of rural municipalities
- Facilitate geographic, inter-tariff and intra- tariff cross-subsidisation from the rich to the poor
- Enhance electrification to eliminate the backlog and ensure equal service level -

8. COSATU’s perspective on the EDI Restructuring, continues ….
2 A National Electricity Distribution Utility (Public Entity):
- comprising six wall-to-wall REDs (Eskom Distribution and Municipal distributors) through legislation
- Under the National Distributor Utility, REDs remaining as public entities -with national board and decentralised management at RED level

9. COSATU’s perspective on the EDI Restructuring, continues ….
- National government retaining its equity (DME as a policy custodian and DPE as a shareholder ministry through Eskom)
- Municipalities owning distributors keep their equity in the national distribution utility – maintaining their credit rating and revenue base

10. COSATU’s perspective on the EDI Restructuring, continues ….
- A strategy to deal with challenges of RED 3 - in addition to using geographic cross-subsidisation
- The National Distributor as the end- state of the EDI restructuring rather than a transitional entity
- RED 1 should be regarded as a 5 year lead pilot-project

11. COSATU’s perspective on the EDI Restructuring, continues ….
Promulgation of an enabling legislation to:
- Provide for governance framework
- Provide for the integration of various distribution infrastructure
- Provide for equity arrangements between
national government (through Eskom) and municipalities owning distributors

12. COSATU’s perspective on the EDI Restructuring, continues …..
- As a statutory public entity – it must be accountable to Parliament
- Enter into service delivery agreements with municipalities
- May lead to an amendment of the Municipal Systems Act to permit municipalities to hold equity in the national distributor utility

13. COSATU’s position on the 6+1 model
1 A competitive end-state will lead to:
- Fragmentation, duplication and forfeiture of economic of scale
- Stand-alone REDs will have negative impact on Eskom’s balance sheet if it looses its distribution assets
- Prevents geographic cross-subsidisation and reinforcement of disparities between regions, urban and rural:
undermining the White Paper’s calls for cross- subsidies, in addition to free basic subsidy

14. COSATU’s position on the 6+1 model, continues …
- Competitive EDI will undermine weaker REDs such as RED 3 and RED 6 – as stronger REDs corner large energy users’ market
- Prevents geographic cross-subsidisation and reinforcement of disparities between regions, urban and rural:
undermining the White Paper’s calls for cross-subsidies, in addition to free basic subsidy

15. COSATU’s position on the 6+1 model, continues …..
- With 94% customers being households, of which 55% are indigent – the 7th RED would be unsustainable
- In the focused scenario, the 7th RED is expected to be loss-making (at least R1.8 billion)

16. COSATU’s position on the 6+1 model, continues …..
2 A deregulated EDI with competitive REDs will undermine:
- Eskom’s net-worth based on rolling years of profitability - (2004/05 = R5.2 billion). Currently rated A1 (domestic currency debt) and A2 (foreign currency debt) by Moody's Investors Service
- Eskom’s debt-to-equity ratio which has recently improved, helping the utility to negotiate cheaper loans for capital expansion – in line with ASGISA.

17. COSATU’s position on the 6+1 model, continues …..
- Creating competition in the EDI amongst independent REDS is going to lead to corporitisation and privatisation
COSATU opposes:
- Corporitisation – making the entities to be at arms length, paying tax and dividends like private companies
- creation of the stand-alone metro-based REDs as proposed in terms of the 6+1 Model

18. Way-forward
Immediate termination of a piecemeal EDI restructuring process, pending thorough-going engagement on the details of the phases and end-state vision
COSATU – NUMSA, NUM and SAMWU scheduled to meet on the EDI Restructuring – in the context of the Jobs and Poverty Campaign

19. Way-forward, continues …
- Need for labour relations stability in the sector for the restructuring to succeed. Therefore, there is a need for clarity on the end-state in terms of the sector-wide bargaining
- Social plan is not a substitute for job- security in the sector. Therefore, COSATU would fight against any model that would lead to privatisation and job- losses

20. - END -
Thank you!