New model proposed to fund backlog of power infrastructure maintenance

The Department of Energy is proposing a new model to fund the backlog of electricity infrastructure maintenance and refurbishment which is estimated at about R70-billion.

The new model recognises that in the light of the constraints on the fiscus‚ no additional funding from this source will be forthcoming‚ nor are tariff increases an option.

The department's director of electricity supply‚ Thabang Audat‚ said in a briefing to Parliament's energy committee on Tuesday that the maintenance backlog was deteriorating and not being addressed by electricity distributing operators.

Electricity distribution infrastructure was on average 40 years old and a sustainable funding model to maintain and refurbish it was required.

Grants from government to municipalities were not effective as the funds were used for purposes other than maintenance and were used for social infrastructure.

The most practical funding solution was a central loan facility with loans coming from development finance institutions such as the Development Bank of Southern Africa‚ Public Investment Corporation‚ the Industrial Development Corporation and international lenders which would be provided with a revenue guarantee.

Audat said in discussions with potential lenders‚ it emerged that they wanted guarantees for repayment of the capital as well as regulatory certainty as conditions of granting loans.

Some of electricity revenue would have to be ringfenced to repay these loans. Audat noted that there was already an allocation made by the National Energy Regulator of SA of between 5-8% of the approved tariff which was ringfenced for maintenance of infrastructure.

So there was funding in the system. This 5-8% would be used to repay the loans and would be deposited into a national consolidated account which would be created.

Audat said the department wanted to obtain the necessary approvals for the funding model and planned to establish a steering committee to spearhead the process.

Nersa officials told MPs that less than the 6% that Nersa required to be ringfenced for maintenance and repairs was in fact spent on this. Electrical infrastructure‚ they said‚ was very old and decaying.

Eskom officials said that Eskom planned to invest R37.7-billion between 2017/18 and 2021/22 on the distribution network‚ including refurbishment of existing infrastructure and new electrification.

But a critical challenge remained the unpaid debt of about R11-billion by end-July. The top 10 municipalities owe R7.3-billion and the top 20 R8.7-billion. There are 69 municipalities that owe more than R10-million.

Eskom group executive for customer services Ayanda Noah said payment arrangements with municipalities were not being fully honoured. Of the 62 payment arrangements existing‚ only 20 were being fully honoured.

She gave notice that electricity supply would be interrupted in the Eastern Cape from Wednesday if negotiations on Tuesday did not succeed in addressing the non-payment problem.

She stressed that supply interruptions were a last resort but that municipal debt to Eskom was climbing in an unsustainable way.

- BusinessLIVE