INFRASTRUCTURE DIALOGUE
ELECTRICITY DISTRIBUTION INDUSTRY
INFRASTRUCTURE PERSPECTIVE
PRESENTED BY
DR WILLIE DE BEER
12 MAY 2011
Presentation Context
� Electricity Distribution Industry (EDI) Introduction
� Assessment of Asset Condition & Performance
� Investment Requirement
� Conclusion
� Recommendations/Discussion Considerations
ELECTRICITY DISTRIBUTION INDUSTRY ELECTRICITY DISTRIBUTION INDUSTRY
INTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTION
Electricity Supply ChainElectricity Supply Chain
Transmission LinesPOWER STATIONS
GENERATION
TRANSMISSION
(765/400/275 kV)
TRANSMISSION
SUBSTATION
DISTRIBUTION (765/400/275 kV) DISTRIBUTION
(132/88/66/44/33
kV)
Reticulation HV Lines 22 and 11kV
Reticulation Lines
DISTRIBUTION
SUBSTATION
Distribution Lines
Reticulation
LV Lines 380/220VSERVICE CONNECTION
ELECTRICITY DISTRIBUTION INDUSTRY (EDI)
EDI ProfileEDI Profile
� Revenue : R40 bn
� Customers : ~9.2 m
� Staff : ~31 000
� Replacement Asset Value (2008) : ~R260 bn
� Energy Purchases (ESI 2008) : ~224 TWh
� Distribution Lines : >400 000 km
� Distribution Cables : >217 000 km
� Transformers : ~ 366 584
� 2008 Figures
Electricity Distribution Industry IntroductionElectricity Distribution Industry Introduction
� The electricity distribution industry (EDI) plays a
significant role in the economic growth and development
of any country;
� The EDI is an asset centric business;
� For sustainability, the EDI is directly dependant on the � For sustainability, the EDI is directly dependant on the
infrastructure performance, the ability to serve the
customers effectively and to collect the revenue
associated with the products and services delivered.
ASSESSMENT OF ASSET CONDITION ASSESSMENT OF ASSET CONDITION
& &
PERFORMANCE PERFORMANCE PERFORMANCE PERFORMANCE
EDI Asset & Performance AssessmentEDI Asset & Performance Assessment
� Various summits and reports were produced:◦ 2003 Maintenance Summit;◦ 2004 & 2008 Follow up Maintenance Summit;◦ 2006 NERSA Audit Reports (11 Electricity Distributors);◦ 2008 UBS Investment Research Report◦ 2008 EDI Holdings: Approach to Distribution Asset ◦ 2008 EDI Holdings: Approach to Distribution Asset
Management (ADAM) Report;◦ 2006 to 2010 EDI Holdings Ringfencing Reports (56
Electricity Distributors);◦ 2010 Eskom Identified 1000 constraint feeders.
NOTE: Latest NERSA electricity distributor audit results not released
Some Key EDI Insights (…1)Some Key EDI Insights (…1)
� The EDI is currently generating revenue however the business model is not
sustainable;
� In general the current practices in the EDI do not guarantee business
sustainability and economic growth;
� The Electricity Distribution Industry (EDI) in South Africa is currently
experiencing significant challenges as a result of amongst others;
◦ Under investment in asset maintenance
◦ Lack of refurbishment investment◦ Lack of refurbishment investment
◦ Under performing industry
◦ Shortage of skills
� To effectively manage the future maintenance and refurbishment requirement,
an estimated additional R2.5bn per annum will be required (2008);
� The maintenance, refurbishment & strengthening backlog is estimated at
R27.4bn (2008);
� While there are pockets of good performance; to avoid a collapse of the EDI it
is essential for an urgent structured intervention;
Some Key EDI Insights (…2)Some Key EDI Insights (…2)
� The pockets of good performance are decreasing;
� The increased operation of under maintained plant is a recipe for disaster;
� Maintenance plans and implementation thereof is not evident in most
municipalities’ electricity departments;
� Maintenance investment is not consistent or in line with NERSA
recommendations;
� Capital investment plans are not clearly defined on a consistent basis;
� Average capital investment is < 5% of actual revenue from electricity in a large� Average capital investment is < 5% of actual revenue from electricity in a large
percentage of municipalities;
� In terms of electricity, municipalities achieved approximately 47% of their total
electricity budgeted capital investment;
� 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;
� Recruitment, training and retention of skills are significant EDI sustainability
risks.
Manage Availability of Supply (Sample of Manage Availability of Supply (Sample of
Distributors)Distributors)Municipality No. of Outages
(Monthly)Average
Downtime per Outage
# 3 0 (Planned)
20 (Unplanned)3 hrs to 1 week
# 520 (Planned)
30 (Unplanned)
Planned – < 8 hours
Unplanned – < 1 hour
From research conducted, unplanned outages mainly occur due to assets not being well maintained and lack of capacity to perform preventative maintenance;A policy of reactive maintenance is adopted in many cases (rather then preventative maintenance) as planned maintenance does not
Key Points
Slide 11
# 116 (Planned)
6 (Unplanned)6 – 48 hours
# 14 8 (Planned)
150 (Unplanned)Not available
# 191 (Planned)
3 (Unplanned)½ hour
# 21 2 1 Hour
# 22 Not available Not available
# 231 (Planned)
2 (Unplanned)2-3 Hours
planned maintenance does not exist in most municipalities;Skills shortage and key resource vacancies is a key driver of outages;Maintenance plans do not exist in over 50% of the municipalities researched;Data available challenges;Limited system driven management information available.
Source: EDI Holdings
Ringfencing Insights
Debtors’ Days and Bad Debt Challenges Debtors’ Days and Bad Debt Challenges
-
20
40
60
80
100
120
140
160
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ay
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07/08
08/09
Debtors Days - significant variationbetween the various municipaldistributors.
Notable increase for one specificmunic of 27 days (07/08) to 142days (08/09) - could be the resultof a decision not to prosecutecustomers in arrears.
Average Debtor Days: 74 Days
-100
-50
-
50
100
150
200
250
300
Cape
Town
Geo
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Ekurh
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07/08
08/09
Average Debtor Days: 74 Days
Bad Debt - significant increase in baddebt (for municipal distributors thatdisclosed relevant information).
The weighted average bad debtincreased by 74% from R61m(07/08) to R107m (08/09).
Total bad debt has risen 93% fromR311m (07/08) to R600m (08/09).
Source: EDI Holdings 2010 Survey
Technical & Non Technical Losses Technical & Non Technical Losses
ManagementManagement
ENTITY TECHNICAL(R’bn)
NON TECHNICAL (R’bn)
TOTAL (R’bn)
Source: EDI HoldingsSource: EDI Holdings
Eskom Dx 1.444 2.404 3.848
Municipalities 0.856 4.082 4.938
TOTAL 2.3 6.486 8.786
Summary of Key ChallengesSummary of Key Challenges
� Management and Leadership;
� Effective management of revenue cycle;
� Reduce technical and non technical losses;
� R27,4 billion (2008) Maintenance, Refurbishment and Strengthening backlog;
� R2,5 billion backlog growth per annum;� R2,5 billion backlog growth per annum;
� 35% average vacancy rate;
� Skills recruitment, retention and development.
INVESTMENT REQUIREMENT INVESTMENT REQUIREMENT
(ADAM as Reference)(ADAM as Reference)(ADAM as Reference)(ADAM as Reference)
Approach to Distribution Asset Management (ADAM)Approach to Distribution Asset Management (ADAM)
� ADAM focus on a holistic approach to distribution asset management;
maintenance, refurbishment and strengthening requirements, to ensure network
reliability, a sustainable industry and an ability to support the required economic
growth from an electricity distribution capacity perspective;
� ADAM is a holistic Asset Management initiative, centrally driven and locally
executed, which will follow a parallel phased approach, governed by strict
programme and project management practices;
� ADAM’s immediate priority will be the NERSA audited entities and short term� ADAM’s immediate priority will be the NERSA audited entities and short term
projects indentified;
� ADAM will address the existing skills shortage through:
� Complementing existing resources in the industry with external expertise;
� Identifying skilled resources that left the industry, and enticing them back;
� Focusing on sustainable skills transfer and capacity building during
execution;
� Run in parallel to the normal daily operations of the utilities.
Source: EDI Holdings ADAM Report
Investment Requirement per RegionInvestment Requirement per Region
Total Backlog Maintenance Refurbishment Short term Strengthening
Total R 27,369,146,995 R 2,736,914,699 R 8,210,744,098 R 16,421,488,197
Note: The Local Government Budget and Expenditure review 2003/04 to 2009/10 by National Treasury
reveals that the capital expenditure on electricity as a percentage of total capital expenditure is decreasing
in real terms by R400m per annum and that the available, capital budget would not be sufficient to cater for
growth and the identified backlog.
Entity Total Backlog Maintenance RefurbishmentShort term
Strengthening
RED ONE (City of Cape Town)
R 3,851,578,245 R 385,157,825 R 1,155,473,474 R 2,310,946,947
RED TWO(Ekurhuleni)
R 5,132,373,764 R 513,237,376 R 1,539,712,129 R 3,079,424,259
RED THREER 2,186,296,025 R 218,629,602 R 655,888,807 R 1,311,777,615
National Picture: EDI Infrastructure Investment National Picture: EDI Infrastructure Investment
Backlog by “RED region”Backlog by “RED region”
RED THREE(Nelson Mandela Bay)
R 2,186,296,025 R 218,629,602 R 655,888,807 R 1,311,777,615
RED FOUR(City of Johannesburg)
R 6,413,148,398 R 641,314,840 R 1,923,944,519 R 3,847,889,039
RED FIVE(eThekwini)
R 4,158,350,649 R 415,835,065 R 1,247,505,195 R 2,495,010,389
RED SIX (Tshwane)
R 5,627,399,914 R 562,739,991 R 1,688,219,974 R 3,376,439,948
TOTAL R 27,369,146,995 R 2,736,914,699 R 8,210,744,098 R 16,421,488,197
Entity Name
TOTALCurrent
Municipal Allocation
Current Allocation
Towards Routine Maintenance
Current Allocation
Towards Backlog
Backlog
Requirement Shortfall per
Financial Year
Rustenburg R 54,000,000 R 43,200,000 R 10 800 000 R 69,375,000 R 58,575,000
Polokwane R 120,000,000 R 96,000,000 R 24 000 000 R 129,079,000 R 105,079,000
Ekurhuleni R 370,000,000 R 296,000,000 R 74 000 000 R 542,096,000 R 468,096,000
Emfuleni R 47,000,000 R 37,600,000 R 9 400 000 R 219,147,000 R 209,747,000
Nelson Mandela
Indicative Current Investment per Financial Year Indicative Current Investment per Financial Year
2008 Data2008 Data
Nelson Mandela
BayR 43,000,000 R 34,400,000 R 8 600 000 R 244,292,000 R 235,692,000
Umsunduzi R 63,500,000 R 50,800,000 R 12 700 000 R 210,079,000 R 197,379,000
Mbombela R 27,200,000 R 21,760,000 R 5 440 000 R 102,196,000 R 96,756,000
eThekwini R 735,000,000 R 620,000,000 R 115,000,000 R 173,000,000 R 58,000,000
Mangaung R 174,000,000 R 167,724,000 R 6,276,000 R 113,867,000 R 107,591,000
City of Jo’burg R 1,305,000,000 R 1,237,500,000 R 67,500,000 R 390,355,000 R 322,855,000
City of Tshwane R 640,000,000 R 544,000,000 R 96,000,000 R 199,815,000 R 103,815,000
City of Cape Town R 711,000,000 R 606,000,000 R 105,000,000 R 184,860,000 R 79,860,000
� The infrastructure challenges in the electricity distribution industry are real;
� The backlog figure is not static and the longer it takes to address it the bigger the
backlog will become and equally the need for funding and competent resources
to address the backlog will increase;
� The EDI asset turnaround programme must be rolled out to stabilise the EDI, but
the biggest challenges remain the funding and skills recruitment;
Conclusion …1Conclusion …1
� While a 5 year execution period is ideal, given the current capital programmes
and skills shortage in the industry, this would not be achievable, hence a 10 year
plan is proposed;
� The successful execution of an asset turnaround programme will call for
dedicated resources and very tight programme management;
Conclusion …2Conclusion …2
� The EDI asset turnaround programme presents a significant skills transfer and job
creation opportunity and therefore it is important to establish the necessary
mechanism, inclusive of trainers, to ensure effective skills transfer during the EDI asset
turnaround programme roll-out;
� The EDI asset turnaround programme is also a unique national opportunity for a
focused long term technical skills development programme across the full engineering
spectrum i.e. construction staff, artisans, technicians, technologists, certificatedspectrum i.e. construction staff, artisans, technicians, technologists, certificated
engineers, engineers and training institutions;
� The EDI asset turnaround programme will fail in its overall objective if it had to recruit
resources currently deployed in the industry, to execute the projects associated with
the EDI asset turnaround programme programme;
� It is essential that the appropriate resource allocation and infrastructure required to
execute this programme be agreed to upfront and be allocated before the EDI asset
turnaround programme is rolled out.
Recommendations/Discussion ConsiderationsRecommendations/Discussion Considerations
� Implement ADAM as a centrally driven holistic (10 year project with a 20
year funding plan) National Priority to deal with the infrastructure
maintenance, refurbishment and strengthening backlog;
� Investigated ADAM funding options and make funding available through a
“central” mechanism;
� Leverage, harness and utilise the skills, expertise and experience gathered
during the EDI restructuring process as well as the stakeholder relations
Note: Note: ADAM Report was presented to ASGISA, IDTT on Energy, ADAM Report was presented to ASGISA, IDTT on Energy, CoGTACoGTA Tech MINMEC, NERSA and various industry Tech MINMEC, NERSA and various industry
stakeholdersstakeholders
during the EDI restructuring process as well as the stakeholder relations
and structures developed to resolve the EDI challenges and improve
service delivery, especially amongst municipalities;
� Introduce, through NERSA and National Treasury, tighter regulation and
compliance of the electricity distribution entities, inclusive of investment in
assets and skills development;
� Enforce ringfencing of the electricity businesses and accountability through
NERSA, CoGTA and the National Treasury.
THANK YOUTHANK YOUTHANK YOUTHANK YOU