S snippets SERVE AND
S snippets SERVE AND DELIVER PRESIDENT APPLAUDS GROWTH INDICATORS President Ramaphosa has welcomed the 1.6% growth in Gross Domestic Product (GDP) recorded in the third quarter of 2022 as an encouraging indication that the Economic Reconstruction and Recovery Plan is bearing fruit. The agriculture, finance, transport and manufacturing industries were the main drivers of growth on the supply side of the economy. The demand side of the economy was lifted by a rise in exports and government consumption. Real GDP, measured by production, was R1.161-billion in the third quarter, which is above the previous peak of R1.152-billion recorded in the fourth quarter of 2018. For Quarter 3, the official unemployment rate had decreased by one percentage point compared with Quarter 2. About 204 000 more people had been employed in Quarter 3 compared to the previous three months. Ramaphosa said: “Given the condition of our economy, we have no room to be complacent, but we do have room to acknowledge that our economic recovery is in progress.” DOWN TO DATA To protect locals from the ongoing impacts of loadshedding, the City of Cape Town recently issued a tender that will establish third-party aggregators who will reward customers for reducing their power usage when the grid is constrained. “In principle, this sounds great, but whether it will work or not comes down to the detail,” says Roger Hislop, energy management systems executive at CBI:Electric. His first concern is how numerous loads scattered across thousands of locations will be turned off. “The technology exists but has not yet been tested in widespread deployment. The back-end management systems will need to be more complex.” He points out that the City of Cape Town will need to check their numbers on the supply side against those produced by the aggregators with the thousands of load control devices under its management. “Essentially, what this means is that quite a lot of work will need to go into exactly how the data is captured and how the incentives are paid out to ensure that the model is economically viable. Most municipalities in South Africa derive a substantial amount of their revenue from the markup they make on the electricity they resell from Eskom. The City of Cape Town will be faced with a double whammy – they’ll make less money from the electricity they sell, and they’ll also be paying out discretionary loadshedding incentives.” SUSTAINABLE WATER SUPPLY The massive population increase in South Africa over the past decades and failing water infrastructure have compounded the current water crisis in the country, says Hans van Kamp, CEO of Kampwater, a Stellenbosch-based water treatment supplier. “Water supply systems and the distribution networks are high on maintenance. In Gqeberha, it is estimated that 40% of the municipal water is lost due to leaking pipes. In the rest of the country, large amounts of treated drinkable water is lost daily because of the thousands of leaks that characterise South Africa’s water piping system. “A major part of the maintenance budget should be spent on the infrastructure, the current pipework network. However, most municipalities are struggling to keep up and prevent the system from collapsing. There are some exceptions but not many,” says Van Kamp. “In 1994, Cape Town had 2.384-million residents and water usage of roughly 300 megalitres per day (MLD). This year, there are 4.760-million people in the same area and water usage of 769 MLD. That is more than a 100% increase in 28 years with a system that did not grow at the same rate to provide for this increase,” says Van Kamp. He says if all the new dams identified by the government are built as promised, it will help to alleviate the pressure. These include the dam on the Mzimvubu River (Eastern Cape), the expansion of the Clanwilliam Dam (Western Cape), Nwamitwa and Tzaneen dams (Limpopo), Hazelmere Dam (KwaZulu-Natal) and Polihali Dam (Lesotho), which will provide water to Gauteng. But, says Van Kamp, for at least the next six years, water supply will get tighter. “People need to know that there is going to be a squeeze on water supply. This information is essential if communities and households are to play their part. People will not change their behaviour unless they are told what is happening and how to avoid a crisis,” says Van Kamp. 4 | Service magazine
snippets S 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. Service magazine | 5
