CENTLEC (SOC) LTD(Addressing EDI Service Delivery Challenges)

Centlec Delegation

(SOC) LTD

Joint Hearing between PC on Energy & PC on Cooperative Governance and Traditional Affairs

26 July 2012

Who are We and What's Our Story ?

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Background

Centlec (SOC) Ltd was established in April 2004 as a municipal entity

wholly owned by the Mangaung Local Municipality.

It provides an electricity distribution service in the Free State to 5 local

municipalities (Mangaung, Kopanong, Naledi, Mantsopa and Mohokare)

Other value added services provided by Centlec include:

Training and Development

Support to struggling municipal electricity distributors in the Free State

Embedded generation (Soon to be re-commissioned)

Centlec has always been the greatest supporter of EDI restructuring

objectives

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Why was Centlec created?

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1. To maximise shareholder value.

2. To strengthen the strategic and operational capacity of Centlec.

3. To position Centlec as the key player during the transitional period of the Electricity

Distribution Industry (EDI) restructuring

4. To ensure good corporate governance

5. To ensure the financial viability of Centlec.

Cabinet Decision and its Implications

On the 8th of December 2010, cabinet took a decision to immediately stop

the restructuring of the EDI industry.

IMPLICATIONS

New industry leaders needed to address EDI challenges

A new strategy and approach needed

A new willingness and commitment by stakeholders to address EDI

challenges is needed

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EDI Objectives

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To provide low cost electricity to all consumers, with equitable tariffs for each customer

segment;

To provide a reliable and high quality supply and service to all customers, in support of

The government’s economic and social development plans;

To meet the country’s electrification targets in the most cost-effective manner, and so

ensure that electrification is contributing to social and economic development;

To meet the legitimate employment, economic and social interests of all employees in the

sector, and ensure their safety; and

To operate in a financially sound and efficient manner, in order to provide a reliable and

sustainable future for both consumers and employees.

Even though the restructuring process by EDI Holdings has been stopped, the objectives that it was meant to address remain valid and urgent. These are:

Successes and impact to date

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Successes to date

Reduce losses - In 1991 the losses in SFS towns 35% - now

12%

Increased delivery on electrification + cost benefit

R92,7m with 101,1% performance past 7 yrs

Collective bargaining power & economy of scale

2011 – own financial system (true financial impact, good

governance, accountability, clean audit)

Collection rate 82,9%

Arrears collected R191m8

Role of technology

Meter readings by cell phone – audit trail

Platform for customer information on cell phone

AMR meters for bulk customers

GIS visualisation – debt and meter type

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Technical Training

Centre capacity – 70 at a time

Training completed 1418

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Technical Training Details

2006 - 2012 Financial Year Totals.doc

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Lessons learned

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Lesson 1: No Constitutional change required

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The Constitution does not say that a municipality itself must provide services; it gives municipalities the right to administer the matters assigned to them and then compels municipalities to ensure the provision of sustainable services. In other words, the municipality must take responsibility for the provision of services whether those services are provided by itself or on its behalf by another service provider.

MSA: Section 76 provides municipal services through either an internal or an external mechanism and also municipal entities operating under the sole or shared control of a municipality. If the service is to be provided through an external mechanism, including provision of the service must be in accordance with a service delivery agreement concluded between the municipality and the external mechanism.

Lesson 2: Service Delivery Agreement

Service Authority

CENTLEC

Service Provider

TariffsElectrificationMaintenance & RefurbishmentIDP

Compliance

Service DeliveryAgreement (SDA)

Service Provision

Delivery

Kopanong

Naledi

Mohokare

MantsopaLETSEMENG

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Challenges

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Capital Requirements

Electrification shortfall – INEP allocation for

munics smaller than for Eskom

Infrastructure upgrades

Vehicles to render the service

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Tax Exemption

Centlec applied for tax exemption – not granted

yet

Impact – 30% tax - remove cash from community

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Eskom vs munic supplies

Electrification in townships done by Eskom

Tariff in communities differs

Eskom 60,83c/kWh

Munic 82c/kWh

Service delivery standards differ

Eskom surcharge in winter months 235%

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Performance evaluation by NT

MFMA requirements – performance of entity

evaluated with munic

Capital requirements evaluated with munic

No mechanism for business case implementation

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Eskom Bulk Tariffs

Average Purchase cost Mangaung – 54,08c/kWh

Average Purchase cost SFS

Naledi – 72,76c/kWh

Mohokare – 70,74 c/kWh

Kopanong – 65,37 c/kWh

Average purchase cost SFS – 69,62c/kWh

Average SFS purchase costs 28% higher

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Proposed Solutions

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Capital Requirements

Consider alternative funding models (ADAM

supported)

MFMA requirements – performance of entity

evaluated on its own

Capital requirements evaluated on its own

Create mechanism for business case

implementation

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Tax Exemption

Centlec to be exempted from tax - NT to intervene

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Tariff Difference SFS towns

Apply Municipal Powers and Functions Act

provision with surcharge of 8 - 10%;

or

Transfer Eskom areas to munics without

compensation (funded originally by Nat Gov)

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Performance evaluation by NT

MFMA requirements – performance of entity

evaluated on its own

Capital requirements evaluated on its own

Create mechanism for business case

implementation

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Way Forward

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Way Forward

Adopt Centlec model for country – its already

working (Ord 8 of 1962 as amended 2004)

Implement model anchored to metro in each

province

Address listed challenges (tax, capital, tariffs,

supply areas) on national level

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Pula !!!

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