UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo

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UPDATE ON THE PILOT APPROACH TO DISTRIBUTION

ASSET MANAGEMENT (ADAM)Mr. Goodman Nxumalo

Energy Programmes and Projects

01 November 2013

Introduction

1. Electricity Distribution Industry overview

2. Electricity Distribution Industry challenges

3. Current state of EDI

4. Approach To Addressing the Challenges

5. Conditionality framework

6. ADAM Programme Implementation Model

7. Progress to date

8. Way forward

9. Allocations

10. Mini - ADAM Projects

2PRESENT EDI TO PCE 2013-NOV

Electricity Distribution Industry (EDI) restructuring overview

• Over the last 20 years different attempts have been initiated to

improve/restructure the EDI in order to address the various short

comings.

• In May 2001 the Cabinet approved the restructuring of the industry and

established Electricity Distribution Industry Holdings (EDIH) to manage

the process.

• After years of attempting to find a workable model within the existing

legislative environment, consultations with the various stakeholders,

taking into account the energy security, legal implications, impact on local

government and Eskom and existing regulations, it became evident that

the restructuring process had to be reviewed.


Electricity Distribution Industry (EDI) restructuring overview (cont.)

• The decision made by Cabinet (8th December 2010) was that

EDIH would be wound up by the end of March 2011 and not to

implement the REDs model.

• In November 2012 Cabinet approved the ADAM Programme and

the start of the first phase

• This presentation is only focusing on the mini-ADAM pilot phase.

• There is also a more long term policy process undertaken by

DOE for the full implementation of the ADAM programme (EDI

policy development in Policy and Planning Branch) .


Current State of EDI• Unacceptable wide range of tariff differences

• Significantly different service standards and practices

• Lack of appropriate investment in the electricity distribution network assets

• Challenges pertaining to technical/non technical losses and revenue

management

• Decrease in quality and reliability of electricity distribution to the end

customer

• Inadequate skills development for the industry


Current State of EDI: Phase 1 Initial Assessment


Having done field visits to all 12 priority cities, the following observations

were made:

• Asset management strategies/plans and appropriate systems do not

exist across the industry,

• Municipalities and Eskom are not providing for sufficient investment in

existing and planned distribution networks leading to a backlog in

infrastructure upkeep.

• The average age of the networks is in excess of 40 years.

• Demand growth exceeds the loading capacity of the networks, which will

amongst others pose a significant risk to the effective introduction of Energy

Efficiency Strategies.

Current State of EDI: Phase 1 Initial Assessment (cont.)


• While the industry suffers from a lack of reliable data and appropriate

measurement, all indications are that network reliability is decreasing, which

is evident in the increase in the number of outages due to poor performing

networks and incidents related to electric cable and associated equipment

theft.

• The regulatory environment is not conducive to enforcing license conditions

of distributors.

Approach To Addressing the Challenges

• It is important to address the challenges in a holistic and integrated manner

• The Approach to Distribution Asset Management (ADAM) Turnaround

Programme is a comprehensive, multi-year initiative targeted at addressing

maintenance, refurbishment and strengthening shortcomings in key

electricity distribution infrastructure.

• Current practices in the EDI do not guarantee business sustainability and

socioeconomic growth, while the associated increased operation of under-

maintained plant is posing a significant risk to the industry.

• The maintenance backlog has been attributed to inadequate investment in

infrastructure that puts the country at risk of deepening the electricity crisis.


Approach To Asset Management


• The NERSA Reports on the state of EDI infrastructure show that even

though there are pockets of good performance as far as maintenance,

reliability, control and networks go, a significant number of assets needs

improvement.

Approach To Asset Management• Through a study conducted by EDIH during 2008 it was revealed that the

estimated maintenance, refurbishment and strengthening backlog in the

distribution network amounted to R27,4bn (2008 values).

• A holistic approach to asset management in the EDI is required to run

parallel to the current work been done in the EDI.


• A business plan for addressing the backlog is already developed.

• The current capital expenditure in the EDI is approximately R5 billion per

annum and there are resource constraints which would make it difficult,

if not impossible, to implement the business plan in a short period of

time.

• The backlog figure is not static and the longer it takes to address it, the

larger the backlog will become and more importantly the need for

funding and competent human resources to address this issue will

increase.

• DOE is in the process of appointing consultants to carry out an update

on the EDI backlog analysis.




Phase 2Implementation of Critical Short

term Projects Identified using MYPDsurplus after deregistration of EDIH

Phase 33.1) ) Continue with implementation of priority projects3.2) Development of plans3.2.1)Funding3.2.2) National Maintenance and Refurbishment / Strengthening Backlog / Human Capital Development / Benchmarking Program3.3) Update Field Audits3.4) Analysis of Field Audits

3.4 Phase 4Maintenance Backlog execution based on funding

ava i lable

Phase 1Development

of Business

Plan for ADAM Project

R23-30 Bi l lion

R2,7 Million

Oct 08

Completed

2013 2023


Resourcing: Funding Requirements Summary


• It is essential that funding be sourced to move the ADAM programme

beyond the first completed phase.

• A phased funding required as indicated above, is required to initiate

the ADAM programme.

Phase 2 R320 mil.

Phase 3 ± R23-33 Bil.

Funding options


For Mini ADAM programme –

• Assist municipalities with technical identification of most critical

challenges

• Development of Business plans

• Engaging with consultants/contactors on work to be done

• Monitoring of progress on a continuous basis.

R320 million available from MYPD2: (Transferred to DOE)

• Implement as a pilot Mini ADAM programme wrt critical

municipalities to test the broader ADAM principles.

• Going forward tariff based

• Part of allowance approved by NERSA

• Ring fencing of tariff allocation for the purpose it is been allocated

• Co-funding by municipality through soft loans

Conditionality framework for mini-ADAM


Each municipality participating would be expected to agree to:

1.Contract signed between DOE and each qualifying municipality

2. Ring-fencing account of approved funding,

3. Submit rehabilitation plan for approval,

4. Report progress as prescribed

ADAM Programme Implementation Model

16

Metro/Municipality

N.T.Mini ADAM Allocation R320m (ex EDIH surplus )

Programme Steering Committee(MASC): Munics, NERSA, DoE, MISA, N.T, DBSA,

Eskom

Project 2

Project 1

Project Manager

Cabinet approval

M.O.A (DOE-MUNIC) Cash flow transfer Report- Annexure ‘D’

Claim Payment

Present Projects

Fun

ding

Le

vel

Pro

ject

Lev

el

Exe

cutio

n

Progress Reporting

Monitoring DoE Team

Payment

DoE

Technical Monitoring

Rec

omm

end

App

rova

l to

DoE

Operations and Maintenance - Metro/Munic

Project n

Ring-fenced accounts

Each Metro/Munic

PRESENT EDI TO PCE 2013-NOV

National Treasury re-allocated R320 million of the funds not been utilized by EDI Holdings to DoE to initiate the “Mini ADAM’ project.In order to kick start the process of implementing the ADAM Programme a “Mini” ADAM programme has been planned. The 2013/14 allocations for the “Mini ADAM” of R320 million was allocated to 7 municipalities and 2 Metros as critical emergency interventions is part of implementation of the overall ADAM strategy.

Note: Due to the limited funding, only municipalities who required critical emergency interventions and responded in time (to fit in with National Treasury’s timelines) with enough information as required by DOE were considered.

No further funding has been allocated in the next financial years for the Mini ADAM programme. In order to ensure that the “Mini ADAM” projects are conducted in a holistic manner, a broad base Steering committee was established.


Mini–ADAM Progress to date

The Key Role of the Mini ADAM Steering Committee (MASC) is to oversee the progress of the programme and ensure it is carried out satisfactorily.The MASC is comprised of:

• Representatives (senior managers) of NERSA, MISA, DOE, DBSA ,N.T., ESKOM)• Any specialists, consultants or advisors may be called upon at any time if required.

1. Considers and recommends approval of the business plans and achievement of outcomes.2. Ensures the project's scope aligns with the requirements of the stakeholder groups.3. Provides those directly involved in the project with guidance on project business issues. 4. Ensures effort and expenditure are appropriate to stakeholder expectations.5. Addresses any issue that have major implications for the projects.6. Keeps the project scope under control as emergent issues force changes to be considered.7. Reports on project progress to those responsible at a high level.


Steering Committee


Mini ADAM AllocationsCATEGORY MUNICIPALITY/CITY COUNCIL* Total R ('000)

320.000Eastern Cape

B-EC157 KING SABATA DALINDYEBO(UMTATA) 60.000 A-NMA NELSON MANDELA METRO (PE) 35.000 Free State B-FS203 NGWATHE (KOPPIES) 20.000 B-FS201 MOQHAKA (KROONSTAD) 20.000 B-FS185 NALA (BOTHAVILLE) 20.000 A-MAN MANGAUNG METRO (BLOEM) 25.000 KwaZulu-Natal B-KZN225 MSUNDUZI (PETRMARITZ) 100.000 Northern Cape B-NC091 SOL PLAATJE(KIMBERLY) 20.000 North West B-NW402 TLOKWE* CITY COUNCIL (POTCH) 20.000


Mini ADAM ProjectsCATEGORY MUNICIPALITY/CITY COUNCIL* Total R('000)

320.000

Eastern Cape

B-EC157 KING SABATA DALINDYEBO(UMTATA) 60.000

1)CBD CENTRAL(SIDWADWA)UPGRADE 2X-TRANSFORMERS 20MVA, EXTENSIONS, CONTROL ROOM 66kV+1kV, SWITCHBOARD 11kV & OTHER2)PRIMARY O.H LINESUPGRADE SIDWADWA-HILLCREST, ZIMBANE-UNITRA, ZIMBANE-SIDWADWA, UNITRA-THORNHILL

A-NMA NELSON MANDELA METRO (PE) 35.000

1)PRIMARY MV SWITCHGEAR REPLACEMENT SWITCHBOARDS-MABANDLA-11kV, KRAGGA KAMMA-22kV, MABANDLA-22kV, KRAGGA KAMMA-6,6kV, FORD STRUANDALE-22kV, CLEVEDON RD-6,6kV, GRAHAMSTOWN RD-22kV 2)PRIMARY MV SWITCHGEARRETROFIT SWITCHBOARDS-STRUANDALE-6,6kV, GREENACRES-11kV, CADLES-6,6kV, EDGAR STREET-6,6kV,EVEREADY-6,6kV,RUSSELL ROAD-6,6kV



320.000 Free State B-FS203 NGWATHE (KOPPIES) 20.000

1)KOPIES BULK SUPPLYSUPPLY TRANSFORMERS & PROTECTION 10MVA-88/6,6kV, O.H. LINES 6,6kV, SWITCHGEAR & OTHER2)PHIRITONA SUBSTATIONSUPPLY TRANSFORMER & PROTECTION 10MVA 66/6,6kV, O.H. LINES 22kV, CABLE WORK & FEEDER LINES 6,6kV & OTHER

B-FS201 MOQHAKA (KROONSTAD) 20.000

1) MAIN SUB TO MAOKENG O.H. LINE CONSTRUCTION 66kV -4,1km2) MAOKENG SUBSTATIONTRANSFORMER BAY CONSTRUCTION 20MVA-66/6,6kV3) FEEDER BAYSEQUIPMENT SUPPLY & INSTALL, CABLE WORK, COMMISSIONING

B-FS185 NALA (BOTHAVILLE) 20.000

1) BOTHAVILLEUPGRADE SUBSTATION SWITCHGEAR EQUIPMENT & OTHER2) KGOTSONG FEEDER 1UPGRADE OF INFRASTRUCTURE, EXCAVATIONS, EARTHING & OTHER3) KGOTSONG FEEDER 2UPGRADE OF INFRASTRUCTURE, MV WORK & OTHER4) WESSELSBRON-MONYAKENGUPGRADE SUBSTATION EQUIPMENT & OTHER



320.000A-MAN MANGAUNG METRO (BLOEM) 25.000

1) BOTSHABELO BLOCK F DC SUBSTATIONELECTRICAL WORK & COMMISSIONING-132kV/11kV

1) BOTSHABELO FEEDER LINESELECTRICAL WORK & COMMISSIONING-132kV-19,5kM

B-KZN225 MSUNDUZI (PETRMARITZ) 100.000

1) PRINCE ALFRET-RETIEF STREETUPGRADE OF SUBSTATION, CABLE GRID & FEEDER BAY2) NORTHDALE SUBSTATIONUPGRADE SWITCHGEAR 11kV, CIVILS & YARD

Northern Cape B-NC091 SOL PLAATJE(KIMBERLY) 20.000

1) APRIL & WIDAM SUBSTATIONS UPGRADE CABLES-11kV, SWITCH PANELS-MV, EXCAVATION & OTHER2) CIRCUIT BREAKERSREPLACEMENT 19XCIRCUIT BREAKERS OSM TO SF6 (66kV) & OTHER3) MIDLANDS SUBSTATIONUPGRADE YARD, FEEDER BAYS-66kV, BREAKERS, CONSTRUCTION & OTHER

North West B-NW402 TLOKWE* CITY COUNCIL (POTCH) 20.000

1) ALPHA & GAMMA SUBSTATIONS UPGRADE, SUPPLY & INSTALL SWITCHGEAR, CONTROL PANELS & OTHER

1. It is imperative that the reform momentum created through the mini-

ADAM Program be maintained.

2. Focus to be directed towards the regulatory challenges afflicting

municipalities, including network rehabilitation, setting norms and

standards for maintenance, monitoring compliance and enforcement.

3. Ring fencing of tariff allocation and the monitoring of these allocations to

ensure it is applied in for the purpose it was attended for.

4. Cooperation from all stakeholders and specially from Local Government

who are responsible for service delivery must be forthcoming so that the

program is successful.

5. Have to finalize long term solution of EDI challenges.


Way Forward

THANK YOU


Documents

UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo