Service Issue 81

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SERVE AND DELIVER
MUNICIPALITIES’ ROLE IN RESOLVING ENERGY SUPPLY
Craig Kesson, PwC South Africa advisory partner and cities leader, says:
“Resolving the energy shortfall requires a collective effort across private
and public sectors, including, and especially, by municipalities who play a
fundamental role in the development of sustainable energy strategies. By
playing a key role in resolving the energy supply gap, municipalities will
be able to contribute to local economic development and job creation.”
PwC’s newly released report, The cities’ role in managing the energy
supply challenges, outlines what can be done in the municipal sphere
to help fix the country’s energy shortage, and discusses how these
solutions can have potential revenue benefits for municipalities.
A VICIOUS CYCLE
South African municipalities have a constitutional mandate to distribute
electricity to their citizens. They predominantly purchase power directly
from Eskom and distribute and sell power to consumers or reimburse
Eskom for direct distribution to them. The on-sell of electricity is a key
source of revenue for municipalities and has accounted for almost 30%
of municipal revenues in recent years. Without this revenue stream,
which often leaves municipalities with surplus funds, many are not able
to cross-subsidise other debt and expenditure items.
Nasreen Mosam, PwC international development partner, says: “This
culminates in a cycle where the rising cost of electricity leads to rising
prices for consumers, which in turn results in more people being unable
to pay service charges. This further increases costs and reduces revenue
for municipalities, increasing the negative impact on municipal finances,
which means that providing key services such as public security, housing
and maintaining public spaces is also affected.”
WHAT CITIES CAN DO
“Cities’ energy strategies will play a major role in achieving sustainability
and energy stability in the long run,” Kesson says. “The ideal scenario
would be for municipalities to purchase electricity from different
suppliers in a competitive market at competitive prices, which will allow
for resale at a surplus and transmission at lower cost to consumers.
Efforts are underway to achieve this through the unbundling of Eskom
and opening of the energy market to competition from the private sector.”
PwC’s report outlines seven immediate measures to
help bridge the energy supply gap. These solutions include
municipalities:
• Enabling wheeling of energy generation
• Supporting the installation of microgrids and small-scale embedded
generation
• Supporting the purchase of power from Independent Power Producers
(IPPs)
• Prioritising spending on maintenance of infrastructure.
Mosam says municipal efforts to close the energy supply gap and bring down
energy prices can also set the course for sustainable municipal revenue
sources to finance spending.
Kesson adds: “Ideally, we would see the private sector generate renewable
energy and distribute it more cost-effectively to consumers through
municipalities. Municipalities would have long-term contracts with private
IPPs to purchase renewable electricity at guaranteed prices that are lower
in a competitive market, and municipalities would win because they would
obtain revenue for their role in distribution. Consumers would win because
electricity prices would likely come down in a competitive system. The
lower cost of electricity and higher certainty of supply would contribute to a
virtuous cycle of economic growth, rising property values, customers paying
accounts, employment, and greater socio-economic development outcomes.”
Municipalities need to act now to mitigate supply gaps in the short
run by putting in place the necessary policy frameworks, mobilising
resources that will enable wheeling, and re-entering small and medium
scale generation into the municipal grid. Crucially, municipalities
will need to establish a long-term strategy regarding their own role in
electricity provision going forward. This will include modelling the optimal
mix of different energy sources needed to optimise supply and meet
demand, as well as attracting and retaining strong, capable teams to
accommodate the new skill sets required to operate in this market. This
way, municipalities will be able to retain their role in energy generation
and be part of a sustainable energy solution that works for producers
and consumers.
25 YEARS OF CCMA
The Commission for Conciliation Mediation and Arbitration (CCMA) has saved 171 000 jobs through its dispute resolution initiatives – this as the organisation
celebrates 25 years of its existence. “We are an institution of statutory creation – born out of the belly of South Africa’s Constitution led by the values of the
Constitution – and we live those values,” says executive director Advocate Sello Morajane. Since opening its doors, the CCMA has handled more than 3.7-million
cases. In the process, the CCMA issued more than 547 000 awards and 130 000 of those awards were enforced.
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