The R100bn question hanging over SA’s electricity grid - TimesLIVE

Reforms to the electricity distribution industry are well behind schedule and require political will and cohesive action across the whole of government to accelerate them, Treasury director-general Duncan Pieterse said on Wednesday.

In a keynote address at an Old Mutual investment summit, Pieterse cited these reforms as one area in which Operation Vulindlela, a joint initiative of the Presidency and Treasury to accelerate long-standing structural economic reforms, is struggling to make progress, with a roadmap that was due in June still not published.

“Many of the reforms in this latter phase of Operation Vulindlela are complex and contested, and they are taking longer than expected. There can be no question that growth will not lift without reform,” said Pieterse, who was speaking fresh off a meeting with investors in London.

Operation Vulindlela focuses on the following priority areas seen as the most important blockages to growth: electricity, freight logistics, water, visas, broadband spectrum, local government, digital infrastructure and spatial inequality ― mainly housing reform and public transport.

Its latest report, for the second quarter of the year, shows that nearly half of the reforms are on track, while 30% are delayed but under way and 10% face big challenges.

Pieterse noted that six years into the initiative, economic growth is still languishing around 1%, far below the 3% needed to create jobs and make a meaningful dent in unemployment, which edged even higher to 33.7% in the third quarter of the year, according to the latest data from Stats SA this week.

While hailing the lifting in 2022 of the licensing requirement that opened the electricity market to new private renewable energy generators, bringing substantial new capacity onto the national grid, he pointed out that the challenge now was to harness the more than R100bn needed to expand and modernise the grid.

“Most of that investment will have to come from private investors. Opening up the market also requires a level playing field, where new private generators can rely on equal access to the grid and a transmission and system operator that dispatches private power on competitive terms with Eskom power ― so that prices come down over time,” Pieterse said.

The contestation in electricity distribution reforms was recently highlighted in the months-long spat, which has since been resolved, between Eskom and business over stripping the utility of its transmission assets as part of an unbundling process first mooted six years ago, which it had argued would worsen its financial position.

In May, industry executive James Beatty said the long-awaited electricity distribution industry reform roadmap, being developed under the National Electricity Crisis Committee represents one of the few opportunities to establish a credible long-term framework for financially sustainable and operationally capable distributors.

He used the example of South Africa’s municipalities, which distribute more than half of the country’s electricity to homes and businesses but are trapped in a cycle of financial instability, ageing infrastructure, governance failures, revenue leakage and technical skills shortages.

In many cases, he said, electricity revenue intended for infrastructure maintenance and network investment has instead been diverted elsewhere, resulting in chronic underinvestment in distribution networks.

On Wednesday Pieterse also stressed the need to open up the logistics market, saying levelling the playing field for terminal operators across the country’s ports would help reduce the cost of trading with the rest of the world and improve South Africa’s global competitiveness.

Recent reports on the operating climate for local businesses have highlighted logistical constraints, particularly at the Port of Durban, as a deterrent to activity this year, alongside higher input costs linked to the Middle East war and its effect on domestic fuel prices.

“In freight rail, the market has been opened to private rail operators and the first privately owned trains have started testing the lines. There too, we need a rail infrastructure manager that is fully independent to ensure a level playing field between Transnet and privately owned operators,” Pieterse said.

He said the metro trading services reform the Treasury is rolling out would incentivise big cities to ringfence revenue from water, electricity and waste and reinvest in infrastructure to support these services, as well as opening the way for private investment.