The DA supports the Electricity Regulation Amendment Bill

14 March 2024

House Chairperson,

There can be no denying the impact 17 years of loadshedding has had on the economic and social well-being of South Africa. 17 years of darkness, cold, and a lack of productivity, that can be laid firmly at the feet of an incompetent ANC government, its deployed cadres, its corrupt practices and its policy incoherence. 17 years in which the unemployment level has spiked to the worst in the world. 17 years in which our economic output has dwindled, and the exchange rate has skyrocketed. 17 years in which Cyril Ramaphosa, Gwede Mantashe, Pravin Gordhan and Ebrahim Patel have had their feet firmly on the neck of a once thriving electricity sector.

And the crisis we find ourselves in is not unforeseen. The bumbling ANC government were warned, as far back as 1998, that sectoral reform was necessary. That new generation was urgently required. Their own White Paper on Energy confirms this!

It is worth noting that the unbundling of ESKOM into separate generation, transmission and distribution entities was first bandied about by President Ramaphosa in early 2019. Later that same year, Hon. Mazzone introduced a private members’ bill – the Independent Electricity Management Operator Bill – which sought to facilitate exactly that.

And while there might have been elements of that Bill which we disagreed about, these could have been negotiated and compromise sought. Instead, the ANC “rejected it with the contempt it deserves” at the motion of desirability stage. Let me unpack that: we could have brought the unbundling of ESKOM forward by 5 years – 5 years! – if the ANC were willing to open their eyes and minds to the concept that not all good ideas emanate from their ranks, and that other parties can and do contribute to the improvement of South Africa.

The Electricity Regulation Amendment Bill, although approved by cabinet in April 2023, was only introduced to parliament in August of last year. This despite repeated warnings to the Minister and in this House that the delays in introduction would result in a rush to conclude the legislative process before parliament rises for the election. And so we find ourselves here today: a section 76 bill, which the National Assembly will in all likelihood pass today, which will not be able to be considered by the National Council of Provinces before the end of the 6th parliament. And that means, that it is extremely unlikely that it will be signed into law before the end of 2024.

At its core, this amendment bill seeks to create a new state owned entity – the Transmission System Operator – and to make that entity responsible for the establishment of an open market platform that allows the competitive trading of electricity. Now that’s a very interesting objective and function, enshrined within the bill, because some of the clauses that will be approved today undermine that precise object.

Specifically, by assigning the National Energy Regulator of South Africa the power to “set and approve prices and tariffs” as per clause 5 of the bill, we are, in essence, removing competition from the playing field. It is, in fact, the antithesis of competition. Everyone will have to conform to a price determined by NERSA. And it should be pointed out that NERSA did not want this power – they claimed they lack the capacity to monitor and enforce it.

A further concern relates to the broad powers assigned to the Minister to make determinations for new or additional generation capacity. In the amended section 34, the Minister is granted the power to deviate from the Integrated Resource Plan – the country’s roadmap for electricity generation and procurement – in making these determinations, in an “emergency”, “in the national interest” or when there is a “failure of the market”. But none of these scenarios are defined in the Bill, and therefore it is left to the Minister to determine what they are.

The proposed section 35B sets out offences and penalties in terms of the Act. One of the changes to the draft bill which the ANC pushed through forcefully in committee, is the removal of the word “willfully”. In so doing, it criminalizes even accidental damage, removal or destruction of electricity generation, transmission and reticulation infrastructure, cables or equipment. What this means, is that you would be guilty of a criminal act if you hit a pothole while driving down the road and crashed into a street light. The bill makes no provision for accidental damage or destruction of such property.

The bill further sets the maximum penalty for person (whether natural or juristic) who contravenes the provisions of the Act, or who without lawful authority, damages, removes or destroys transmission, distribution or reticulation cables, equipment or infrastructure at 5 years imprisonment and/or a R1 million fine.

But this is significantly less than a person who receives electricity infrastructure, cables, equipment etc. from a person who they do not have reasonable cause to believe is duly authorized by the owner of those items to deal with or dispose thereof. In this latter case, the penalty is set at a maximum of 10 years imprisonment and/or a R5 million fine.

Chairperson, the portfolio committee had an opportunity to make good legislation. As has become the norm with the ANC, they blew it. We remain concerned that the creation of a Transmission System Operator state owned entity, as envisaged by the bill, does not go far enough to ensure the independence of the unbundled entity.

A World Bank report from 2002 notes that a Transmission System Operator “must be independent of the ownership and control of market participants (e.g. generators, distributors and suppliers).” It goes on to state that independence is required “so that the Transmission System Operator does not discriminate in favor of one market participant over another.”

The Department of Public Enterprises has suggested that independence is unnecessary, given the unbundling of ESKOM into 3 separate entities (generation, transmission and distribution), all housed under ESKOM holdings and with the government as the sole shareholder. But the World Bank has a view on this too: “functional unbundling”, or the idea “that allows the grid operator to remain within a larger power enterprise that owns generation and transmission facilities, but tries to establish detailed conduct rules so that the grid operator will act as if it is separate, even though it really isn't” is fraught with problems.

It does not work for two reasons: firstly, it conflicts with the normal incentives of any commercial enterprise to try to protect the profits of its parent/affiliated companies”; and secondly, “it is virtually impossible for the regulator to enforce the rules”.

Despite these misgivings, it is vital that the system operator be established and the electricity sector opened up to private sector participation. The Democratic Alliance will support the bill.

Issued by Kevin Mileham, DA Shadow Miniter of Mineral Resources and Energy, 14 March 2024