Introduction

The Electricity Distribution Industry (EDI) is valued at R50-billion. South Africa's first Regional Electricity Distribution (RED) was launched in Cape Town in July 2005 by Ms Lindiwe Hendricks, the then Minister of Minerals and Energy.

RED 1 leads the way for the other distributors. REDs will provide competitive electricity tariffs and offer an efficient electricity service, thus ensuring that consumers get a reliable electricity supply. These entities will, in the long term, enable access to electricity for all.

REDs will consist of Eskom Distribution and the local authorities. They will buy electricity from power generators such as Eskom at wholesale prices determined by the National Energy Regulator of South Africa (NERSA). The launch was highlighted by the signing of the Service Delivery Agreement and the Agreement on Operating and Transition Plan for Transfer between RED 1 and the City of Cape Town; and RED 1, the City of Cape Town and Eskom respectively.

Read about Red 1 on the official website of the City of Cape Town.

Restructuring of the electricity distribution industry

The distribution of electricity is undertaken by Eskom and about 415 municipalities. The municipalities collectively service about 60 percent of total customers by number, and about 40 percent of total customers by sales volume. Municipal electrical departments generally supply consumers in their local government areas. The municipal distributors differ greatly in customer density, size and type of customer base, geographic spread, financial base and effectiveness.

The issue in the EDI is how to transform the industry so that it meets the government's stated objective of providing low-cost electricity and high-quality service to South Africa's growing economy and population.

The biggest need for change in the electricity industry is within the EDI. Therefore, the restructuring of the electricity industry focuses on the EDI and not the whole industry.

As a result the Electricity Restructuring Interdepartmental Committee (ERIC) was formed to formulate the government's position on a future structure and financial model for the EDI. The ERIC report describes the challenges facing the industry and the government's recommendations on the steps that need to be taken to put a more effective and efficient industry in place.

Download: Reform of the EDI in South Africa: strategy and blueprint [PDF, 281KB]
Download: Review of the EDI: revised blueprint [PDF, 135KB]

The EDI restructuring process differs from most other State restructuring activities as it addresses a number of diverse stakeholders of which the most important are:

• Eskom (60 percent of sales, 40 percent customers);
• Electricity departments of municipalities (40 percent of sales, 60 percent customers);
• Provinces (related to their governance of municipalities);
• Consumers, ranging from very large and electricity intensive consumers to small consumers;
• Labour; and
• A number of government departments.

The government's position on the EDI

Based on the findings of ERIC, Cabinet recommended:

• To consolidation the electricity distribution industry into the maximum number of financially viable and independent regional electricity distributors (REDs). This means that the distribution sections of Eskom and the 420 licensed local authorities will be combined into a small number of REDs. The number of regional distributors still has to be determined;
• Introduce cost-reflective tariffs, an electrification fund and a capped tax for part-funding of municipal services. The tariffs, subsidies and tax will be fully transparent. The electrification fund will be administered nationally;
• Initiate consultation between major stakeholders and the ministers of Minerals and Energy, Finance, Public Enterprises, Labour, Trade and Industry, and Provincial Affairs and Constitutional Development; and
• Appoint a full-time restructuring team to investigate detailed issues and involving major stakeholders in the planning of the transformation process.