1. FREE BASIC ELECTRICITY/FREE BASIC ALTERNATIVE ENERGY March 2012 1/15/20151

2. PRESENTATION OUTLINE 1/15/20152 Background Mandates Funding Implementation Challenges and Possible Interventions Status Conclusion

3. BACKGROUND ON FBE/FBAE 1/15/20153  The government announced a statement of intent in respect of the provision of free basic services in 2000 and the main areas of focus were free basic water and free basic energy. Implementation of free basic electricity programme started in 2003 with the following intentions: o To provide basic energy to poor households to alleviate poverty. o Minimise the health impact arising from the use of certain fuel.

4. BACKGROUND ON FBE/FBAE cont… 1/15/20154 o Free Basic Electricity (FBE) for the provision of both grid and non-grid. o Acknowledging that not all poor households in South Africa have access to grid or non-grid electricity, o provision of FBE sounds unfair to un-electrified households o lack of infrastructure for the provision of FBE necessitated Free Basic Alternative Energy (FBAE) Guidelines for subsidising alternative energy carriers. o Provision of FBAE is more expensive than FBE since most of the alternative energies are unregulated.

5. BACKGROUND ON FBE/FBAE o Other programmes presently complementing FBE in the Energy Sector as further measures introduced to address affordability and protecting the poor: o Implementation of Inclining Block Tariff (IBTs) even though other Municipalities currently experiencing challenges with regards to the implementation. 1/15/20155

6. BACKGROUND ON FBE/FBAE 1/15/20156 o Facilitating access to electricity through government subsidised electrification; o Free connections provided to Eskom’s low consumption residential customers; and o Lower price increases applied to low consumption domestic customers. (15% vs general increase of up to 31.3%)

7.  Section 104 (4) of the Constitution provides for provincial legislation with regard to a matter that is reasonably necessary for, or incidental to, the effective exercise of power concerning any matter listed in schedule 4 of the constitution.  Section 139 (1) of the Constitution provides for provincial intervention when Municipalities does not fulfil its executive obligation.  MANDATE OF MUNICIPALITIES IN RESPECT OF FBE section 156 (1) 1/15/20157 MANDATE OF PROVINCES IN RESPECT OF FBE

8. ENERGY SOURCE GIVEN AS FBE/FBAE 1/15/20158  Provision of free 50kWh of grid electricity per month to all households with concomitant blocked or stepped tariffs (IBT) for electricity consumption beyond 50kWh to mitigate the cost implication of the free basic electricity provided.  The pilot study suggested that 35 to 60KWh/month was considered adequate electrical energy to meet lighting, media access, limited heating needs for a poor household. After consultation and taking into account the funding aspects, 50KWh was deemed appropriate FBE amount per month per household.

9.  Provision of free non-grid electricity to all non-grid electrified households (connected through the National Electrification Programme).  FBAE given to indigent households include: 1/15/20159 ENERGY SOURCE GIVEN AS FBE/FBAE Petroleum Products to Un- electrified Renewable Energy to Un- electrified o Paraffin, LPG o Candles and other lighting fuels o Fire wood o Coal/Low smoke fuel o Biogas

10. CHALLENGES - IMPLEMENTATION 1/15/201510 Disconnections  Eskom and Municipalities are using the practice of disconnecting households and businesses as a credit control measure.  Defaulting indigents on the Poorest-of-the-Poor (POP) programme lose their free basic electricity (FBE) monthly entitlement when their electricity supply is disconnected due to a default in payment of other services.

11.  Made worse by the fact that FBE does not accumulate if not used within a particular month and cannot be claimed retrospectively. Limited funds  Free basic electricity accrues to a designated POP on a monthly basis subject to funding availability from a municipality. Inconsistency in Policy Application  Between municipalities and Eskom.  Amongst municipalities themselves. 1/15/201511 CHALLENGES - IMPLEMENTATION

12. 1/15/201512 Other challenges include the following  Lack of indigent policies and registration, verification & management of indigents.  Cogta, DoE, SALGA, ESKOM and other utilities are assisting Municipalities.  Token collection, enhancement and provision of FBE/FBAE levels of service in contravention of policy.  Municipalities to assist beneficiaries on collection and advice on enhancement. CHALLENGES - IMPLEMENTATION

13. Lack of communication. -Continues improvements on communication by all stakeholders. Lack of reporting, monitoring & evaluation system. -Cogta committed to incorporate this responsibility in the current restructuring of the Department. -Coordination of FBS implementation at provincial & municipal level. 1/15/201513 CHALLENGES - IMPLEMENTATION

14. FUNDING ALOCATION: FBE/FBAE 1/15/201514  Apportionment of the Free Basic Electricity/Energy allocation in line with the FBAE guidelines.  The cost of providing Free Basic Electricity and Free Basic Alternative Energy is included in the MTEF budget allocation of the Department of Provincial and Local Government resulting in Municipality revenue generation challenge.

15.  Where Service Authorities have been allocated with inter- governmental grants to provide for operating costs in respect of basic services (other unconditional components of the Equitable Share), such municipalities shall pass on the benefits of such grants to targeted indigent households.  Municipalities must further allocate funds from their budgets for FBE/FBAE to supplement allocation to cover all the indigent households. 1/15/201515 FUNDING ALOCATION: FBE/FBAE

16. 1/15/201516 PROVINCE % Config uration % Consu mption Eastern Cape 10075 Free state10081 Gauteng9859 Kwa Zulu Natal 8657 Limpopo10081 Mpumalang a 10078 North West9872 Northern Cape 9872 Western Cape 10089

17. 2011 FREE BASIC ENERGY SNAPSHOT 1/15/201517 PROVINCES December '11 FBE Total Indigent Households (Census 2001) Total Indigent Household s(Munic data) EskomMunicipality non- grid Total% Eastern Cape939,776717,759141,340218,68410,096370,12039 KwaZulu-Natal1,162,490220,269130,498143,12934,202307,82926 Gauteng967,539233,776389,358428,3440817,70285 Mpumalanga444,112197,30584,948114,2734,100203,32146 Limpopo744,676525,959190,674104,12321,928316,72543 North West440,733143,21073,94922,46712696,54222 Free State425,049229,435106,923373,968920481,811113 Northern Cape 118,19495,73643,58747,18630091,07377 Western Cape290,213204,821182,508441,718301624,527215 Total5,532,7822,568,2701,343,7851,893,89271,9733,309,65069

18. 18 Access to Electricity National Progress Access - 1996 Access - 2010

19. CONCLUSION 1/15/201519  Estimated national implementation of Free Basic Electricity/Free Basic Alternative Energy (FBAE) is about 70% to all the qualifying indigents.  DoE will review the policy in the future to incorporate new policy developments.  Municipalities use their policies to identify the recipients of the FBE.  Lack of a monitoring mechanism on the ground makes it difficult to establish accurate figures.

20.  Cogta reported that they are undergoing structural changes to incorporate resources to monitor FBS.  Poverty alleviation is an important challenge for the country. The links between poverty and energy are clear, and as such the policy on free basic electricity is an important key to uplifting the poor. 1/15/201520 CONCLUSION