Comments on the Expropriation Bill of 2015

Submission to Parliament’s Portfolio Committee on Public Works

Eskom’s considerations as a public infrastructure service provider

Executive Summary

• Eskom is currently experiencing significant delays in acquiring servitudes for the construction of transmission and distribution infrastructure, this is largely due to lack of an effective expropriation process as per the current legislation.

• Legislative changes made todate does not addressed the delays

• Two examples of these are the Mercury Perseus 765 kV power line were the expropriation process took 6 years to conclude and the Etna Glockner 400 kV power line which took more than 4 years since 2010

• These delays impact Eskom negatively due to an increase in construction costs and timelines and in the past have lead to stranded assets and under achievement of electrification targets

• The ability to connect big business and heavy industry in an expedient manner is key for economic and social development

• Eskom is recommending a fair process for all parties i.e. the payment of market related prices for land and that parties engage in a process that is transparent and can be concluded in a timely manner

• Precedent for effective expropriation exists in companies such as Transnet and SANRAL

• In line with the above Eskom is requesting that for public infrastructure, the power to expropriate vests with the Chairperson, Chief Executive, or similar executive head of the expropriating entity.

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The acquisition of servitudes is often the longest activity in the construction of Eskom powerlines & Power plants….

EIA, Land Acquisition,

Surveying, Design

Network Planning & Project

Development

Construction

6-12 months

3-6 years

18- 24 months

CRA

DRA

ERA

Scope defined

EALand/ Servitude

rightsLine/ sub design

Procurement & construction

TIME Activities Outputs

2 to 4 years assumed for

land/servitude acquisition

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Project purpose Evacuate power to the Western Cape (N-1 Contingency)

Expropriation steps: • Decision to expropriate: March 2006

• Application made to the DoE: April 2006

• Expropriation notice issued by DoE: August 2012

Delay 6 years

Impact R110m lost in unserved energy*

Costs (incurred / potential)

R3m penalty payment by Eskom

Delay in the construction of the Mercury Perseus 765 kV power line

(Mercury sub-station near Orkney, to Perseus sub-station near Dealesville (FS))

* Unserved energy refers to the energy that would have been consumed by the end user had the network been in operation.

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Project purpose Strengthening of Vaal and Soweto areas – increase capacity

Expropriation steps: • Decision to expropriate: July 2010• Applied to DoE & DPW: November

2011• To date no expropriation

Delay 2 years - ongoing

Impact • Inflated values paid to recalcitrant owners

• PFMA implications and increased tariffs

Costs (incurred / potential)

R 85 000 / project - cost increase (1 000 projects awaiting negotiation = potential R 85m additional costs)

Delay in the construction of the Etna Glockner 400 kV power line

(Etna substation in Johannesburg, to Glockner substation near Meyerton)

Impact on Eskom

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Impact Reason

Increased servitude cost

• Due to expected delays in expropriation, Eskom pursues sub-optimal alternatives in obtaining property. For example:

• Pays more than market value which violates PFMA.

• Buys whole farms rather than strip servitudes.

• Continuously amends environmental and other authorisations with alternative routes to accommodate the needs of the farmers.

Sub optimal line routes • Forced to follow sub-optimal routes for transmission and distribution lines, with impact on construction cost.

Construction delays • Construction cannot commence until all land is procured, causing delays in power delivery.

Resource effort (Cost and Time)

• Cost of time spent on multiple rounds of negotiation with property owners, and subsequent re-start of negotiations for alternative routes.

Environmental • Rerouting impacts other services corridors, and must often follow the least environmentally desirable route. Perception: we are seen as targeting those groups that do not have financial muscle to fight Eskom.

Revenue loss • Delays in the evacuation and distribution of power resulting in loss of revenue and the subsequent economic benefit.

Government is at risk of not reaching its electrification targets unless the expansion of the transmission network can be expedited in time. For example, 44 086 connections in Limpopo and 23 135 connections in the North West Province may be at risk if transmission lines are not in place to evacuate power to these communities.

The ability to connect big business and heavy industry in an expedient manner is key for economic development, the following project are at risk…..

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Key developments Impact on Economy

Gauteng Zendai Modderfontein, Linbro Park, Kyalami, Orlando and Vilakazi

• Transmission and Distribution industries create direct and indirect job opportunities and support localisation and industrialisation.

• Having to wait until all land is acquired before construction starts, causes blockages in the work pipeline.

• These delays lead to job and skill losses and result in imports of both labour and material as the local industry cannot absorb the constructions lows and cannot respond quickly to construction peaks.

Free State Sasolburg and Vaal Triangle expected growth (2015-2024) is 150 MW.

KwaZulu Natal eThekwini Metro expected growth (2015-2024) is 500MW, which includes Shongweni development, Cornubia development, Dube tradeport development and old airport dig-out.

Eastern Cape COEGA IDZ will require an additional 400MW

Western Cape Substantial load growth in West Coast is expected due to the Saldanha Bay IDZ

Limpopo Mining in Mokopane, Steelpoort, and Lephalale

Requirements and commitment• To ensure a fair and transparent process: Land owners still have unfettered access to the Promotion of

Administrative Justice Act.

• To ensure speedy yet efficient and effective negotiations.

• To spend public money cost-effectively and To pay fair compensation to the landowner and other rights holders

• To fairly evaluate expropriation as a viable but last option.

• To uphold the constitutional values set out in section 25.

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• A process and expropriation powers that are aligned with existing precedents, with protection provided by the Constitution.

• A process for acquiring and protecting land and rights without stunting the growth of the country.

• An ability to deliver on national plans within expected timelines and budget.

• In 2005, Eskom discussed the suggested expropriation process with AgriSA and TLUSA. Both unions indicated that this process will be acceptable, as long as they could exercise their constitutional rights to influence the final route during the environmental impact assessment process.

Impact of the recommendations

Eskom is committed to a fair and transparent process

Precedent for effective expropriation already exists

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Entity Expropriator

Government

i. KZN provincial legislation KZN: Appropriate MEC

ii. Gauteng (Infrastructure Support Act – 2001)

Gauteng: Appropriate MEC

State Owned Companies

i. National Water Act * Minister of Water & Sanitation, could delegate to TCTA and other Water Management Institutions

ii. SANRAL * Minister of Transport

iii. Transnet * Transnet: Chairperson of Transnet

Recommended principles to be incorporated in changing the Act….

The expropriation act should incorporate the following principles:

• Provide the standardised process for expropriation.

• Follow the existing precedent by vesting the power of expropriation in the Chairperson, Chief Executive, or similar executive head of the expropriating entity.

• Limit this right of expropriation to rights required for a public infrastructure purpose or in the public interest.

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