West Africa Power Industry Convention29 November 2011

Abuja, Nigeria

Electricity Distribution Industry Restructuring: The South Africa Experience

Author and Presenter Dr. W.J. de Beer PhD; MBA; Pr. Cert. Eng.

NETGroup South Africa

Presentation Content

• Electricity Supply Industry

• Restructuring objectives• International observations

• The SA reform journey• Some key lessons learned

• Conclusion

Classical Electricity Supply Industry (ESI) value chain

Electricity Supply Chain

Transmission LinesPOWER STATIONS GENERATION

TRANSMISSION (765/400/275 kV)

TRANSMISSION SUBSTATION

DISTRIBUTION (132/88/66/44/33 kV)

Reticulation HV Lines 22 and 11kV

Reticulation Lines

DISTRIBUTION SUBSTATION

Distribution Lines

ReticulationLV Lines 380/220V

SERVICE CONNECTION

ELECTRICITY DISTRIBUTION INDUSTRY (EDI)

SA EDI Context

• The South African electricity distribution industry is highly fragmented;

• Service being provided to an estimated 9.2 million customers;

• Eskom and approximately one hundred and eighty-seven (187) re-distributing municipalities;

• Electricity distribution is a municipal competency;• 31 000 Employees in the electricity distribution industry;• Asset value ~ZAR260bn (2008);• 400 000 km of overhead line;• 210 000 km of underground cable;• 400 620 transformers.

SA: EDI restructuring objectives

• To provide:

– low cost electricity to all consumers, with equitable tariffs for each customer segment;

– 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;

– 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.

Source: Department of Minerals and Energy: “Reform of the Electricity Distribution Industry (EDI) in South Africa: Strategy and Blueprint, February 2001”.

Global ESI Restructuring Drivers

• Efficiency improvement potential; • Business sustainability;• Business synergies; • Improved service delivery;• To attract private investment;• Energy security considerations etc.

Some International Reform Observations

• Electricity industry reform is a “global practice”;• There is no “one size fit all” solution;• Reform process in most countries took between 10 and

15 years to complete;• Reform process in most countries executed in a legally

enabled environment;• Availability of reliable data and due diligence are mission

critical;• Market clarity;• Level of regulatory maturity;• Asset owner cooperation was in place to support the

reform process and endure such a long journey;• Political will to direct the reform process.

SA: EDI Reform Journey

Some of the Key Lessons Learned

• Restructuring of the electricity industry is a complex process;• The electricity industry is by its nature an asset centric business. Without

prudent investment, the asset and business value can deteriorate very fast; • State of the electricity industry directly impacts on the economic growth of a

country and the ability to render effective services;• Business Model, transaction principles, parameters, compensation,

ownership and relevant legislation, amongst others, must be agreed to before the reform process can be implemented;

• Participation of the stronger entities in the current industry is key to the ability to lay a sound foundation for any restructuring process;

• Restructuring cannot take place without the willing asset contribution of the current asset owners;

• Any delay in the restructuring process has a direct impact on the morale of the people in the industry and in particular, leads to the development of other strategies which are not always in support of the long term vision for the EDI;

• Enabling legislation is critical to the EDI restructuring success;• Visible and committed strategic leadership/sponsorship is critical.

Important Pointers

• Be sure the Sponsor of the reform journey is onboard;

• Be sure you “understand where you are” before you get to excited about the “to be”;

• Develop and implement an integrated and holistic electricity supply industry reform programme;

• Get all the “transaction” and legal enablers addressed as early as practical possible and before you start the reform journey;

• Do not lose focus in respect of asset investment, resource development, revenue management and service delivery while you are planning and executing the electricity reform;

• Establish the required programme management capability to effectively manage the reform journey;

• Do not underestimate the importance of a competent and effectiveRegulator;

• Surround yourself with competent and experienced resources and advisors;

• Keep your stakeholders and staff informed (even if it is bad news);• Once you start the reform journey, keep the momentum.

Conclusion

• Restructuring of the electricity industry must be well planned, effectively managed and rolled out in a controlled/integrated fashion;

• You cannot allow the restructuring of such a critical industry to take place by default;

• Ultimately, the price and the pain of being proactive will be far less than that of recovery from the consequences of an ineffective reform process;

• The future of the electricity industry in any country is in the “collective hands” of the current leadership and operators.

THANK YOU