Energy department seeks R68bn to fund power grid backlog
Cape Town – The Department of Energy is in talks with development finance institutions (DFIs) to fund a R68bn-plus backlog in the country’s ageing electricity distribution infrastructure.
The electricity infrastructure maintenance, rehabilitation and strengthening backlog was around R27bn in 2008 and increased to R68bn by 2014, an approach to distribution asset management (ADAM) report found. This backlog is rising, according to the national energy regulator Nersa.
Thabang Audat, director of electricity policy at the Department of Energy, told Parliament’s portfolio committee on energy that there were many scenarios to fund this shortfall, but this was the most viable.
He explained that National Treasury is constrained in providing further grant funding, while they could not get a tariff increase from Nersa.
Therefore, the department said it had decided to start negotiations with development finance institutions including the Development Bank of South Africa, the Public Investment Corporation and the Industrial Development Corporation.
These entities will require guarantees that the capital will be repaid and they will also need regulatory certainty, explained Audat.
Currently, Nersa provides between 5% to 8% of its overall tariff to upgrade or maintain the electricity infrastructure in municipalities around South Africa. As this allocation cannot be increased to fund the backlog, the department is proposing using this allocation to repay the funders.
Nersa said in its submission to Parliament that the need for electricity distribution industry reforms still exists, as there are too many tariffs and many municipalities are financially and technically unsustainable.
“Municipalities must change their business model to decrease their reliance on electricity revenues, which will be impacted by small scale embedded generation,” it said.
It explained that its municipal tariffs are approved on an annual basis in a process that includes 177 municipalities and 10 private distributors.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.