Dr Willem J. De Beer, Chief Operations Officer, EDI Holdings (Pty) Ltd, South Africa 23November 2010

Transcription

1 Dr Willem J. De Beer, Chief Operations Officer, EDI Holdings (Pty) Ltd, South Africa 23November 2010

2 The process of dealing with the EDI maintenance backlog: Can we catch up?

3 Electricity Supply Chain GENERATION Transmission Lines TRANSMISSION SUBSTATION TRANSMISSION (765/400/275 kv) DISTRIBUTION (132/88/66/44/33 kv) ELECTRICITY DISTRIBUTION INDUSTRY (EDI) FOCUS Reticulation Lines & Cables Distribution Lines (HV Lines & Cables) SERVICE CONNECTION LV Lines 380/220V MV Lines 22 and 11kV DISTRIBUTION SUBSTATION

4 Electricity sold (%Y/Y) and real GDP % y/y Source: Statistics South Africa, Eskom Data as at September 2010

5 Price and Economic Growth Projections Index 127% 18% Source: Eskom, Stats SA, RMB FICC Research Data as at September 2010

6 Electricity Demand % y/y Source: RMB FICC Research, University of Pretoria Data as at September 2010

7 Source: Eskom Data as at September 2010 Eskom s Reserve Margin

8 An Update on Eskom s Build Project mw Source: Eskom Data as at September 2010

9 Electricity Demand and Supply Projections 000 MW h Source: Eskom, FICC Research Data as at September 2010

10 Electricity Distribution Industry (EDI) Profile Revenue : ~ R40 bn Customers : ~9.2 m Staff : ~ Replacement Asset Value (2008) : ~R260 bn Energy Purchases (ESI-2008) : ~224 TWh Energy purchases (EDI-2008) : ~120 TWh Distribution Lines : > km Distribution Cables : > km

11 EDI Insights Maintenance plans and implementation thereof is not evident in most municipalities electricity departments. Maintenance investment is not consistent or in line with NERSA recommendations. Average age of asset base 45 yrs. Capital investment plans are not clearly defined on a consistent basis. Capital investment is < 5% of actual revenue from electricity in a large percentage of municipalities. In terms of electricity, municipalities on average achieved approximately 47% of their total electricity budgeted capital investment. Approximately 1000 constrained feeders in Eskom Distribution which cannot accommodate more load. Recruitment, training and retention of skills are significant EDI sustainability risks. Ability to continue to provide reliable and affordable electricity at risk. The pockets of good performance are decreasing.

12 EDI Challenges in Context The EDI is currently generating revenue however the business model is not sustainable The EDI in South Africa is currently experiencing significant challenges as a result of amongst others; Under investment in asset maintenance Lack of refurbishment investment Under performing industry Shortage of skills Maintenance, refurbishment & strengthening backlog ~ R27.4bn (2008) An additional ~R2.5bn / annum maintenance and refurbishment required In general the current practices in the EDI do no guarantee for business sustainability and economic growth Supply chain process within most municipalities does not support accelerated implementation of projects and procurement turn around times While there are pockets of good performance; to avoid a collapse of the EDI it is essential for an urgent structured intervention The increased operation of under maintained plant is a recipe for disaster Slide 12

13 UBS Investment Research March 2008 In addition to the lack of investment in generating capacity, the South African electricity distribution network is (according to industry experts) also in a state of critical underinvestment. Eskom is responsible for 95% of generation and 100% of transmission. Distribution, however, is owned about between Eskom itself and the munics (municipality-owned distribution companies). As a rule of thumb, distribution companies should be investing at a rate of about 10% of asset value per year. However, for a number of reasons beyond the scope of this report, investment rates in many (especially non-eskom) distribution companies are as low as 1-2% per year. Thus, while much of the focus has been on generating capacity, a major threat to efficient energy supply is distribution. Slide 13

14 Maintenance Spent vs. Actual Revenue Type 3 Type 4 Type 5 Type 6 Type 1 Source: Ringfenced Financial Statements

15 Actual Maintenance Spend vs. NERSA & International Guideline Maintenance Spend Source: Ringfenced Financial Statements

16 Electricity Skills as a % of Total Vacancies Type 1 Type 3 Type 4 Type 5 Type 6 * -No data ** - No comprehensive vacancy data *** -All Contractors Source: Relevant Department Listing & HR Close-out Reports, Critical Skills Report

17 Outage Management Municipality No. of Outages (Monthly) Average downtime per disruption # 3 # 5 # 11 # 14 # 19 0 (Planned) 20 (Unplanned) 20 (Planned) 30 (Unplanned) 6 (Planned) 6 (Unplanned) 8 (Planned) 150 (Unplanned) 1 (Planned) 3 (Unplanned) 3 hrs to 1 week Planned < 8 hours Unplanned < 1 hour 6 48 hours Not available ½hour # Hour Key Points 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 (rather then preventative maintenance) as planned maintenance does not exist in most municipalities. Skills shortage and key resource vacancies a key driver of outages. Maintenance plans do not exist in over 50% of the municipalities researched. # 22 Not available Not available # 23 # 24 1 (Planned) 2 (Unplanned) 4 (Planned) 9 (Unplanned) 2-3 Hours 3 hours Source: Close Out Annexure Documents

18 National Picture - EDI Infrastructure Investment Backlog / RED Region (2008) Entity Total Backlog Maintenance Refurbishment Short 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 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

19 Investment Reality A limited number of municipalities are increasing their investment in the assets Municipal Infrastructure Grant (MIG) 2009/10 4% of municipalities failed to spend any of their MIG allocation 15% of municipalities spent less than half of their MIG allocation 37% of all municipalities spent all of their MIG allocation ~R2bn is lying in municipal bank accounts rather than invested in the assets Eskom Distribution Additional R1.4bn per annum over next 10 years to ensure that backlog does not increase Strengthening expenditure expect to increase from R3.1bn to R5.4bn in next 5 years Refurbishment to increase from R1.5bn to R2.3bn per annum over next 5 years.

20 Funding the Required Asset Investment Improved business performance and efficiencies e.g. address technical and non-technical losses: Eskom (2009/10) - Non technical losses account for 4.3TWh (R1.2bn) per annum (2.3%) Total EDI non technical losses ~ R6,5bn per annum Redirect the MIG allocation Tariff adjustment Grant funding Hybrid of the above options

21 EDI Maintenance Backlog: Can we catch up? Yes!!!! On condition that: Political championship for the asset turn around strategy be addressed Approach to Distribution Asset Management (ADAM) plan be adopted as the turnaround framework The funding requirement be addressed Dedicated resources be appointed to drive ADAM as a national integrated solution Utility resources be complement to ensure a balanced day to day operational focus and ADAM roll out

22 Conclusion The asset management in the EDI requires an integrated and holistic approach. Accountable and competent leadership is required. The attitude towards asset management, inclusive of investment in assets, must change. Tighter regulation of the EDI is required There is a compelling case for the EDI reform and it is essential that the RED establishment programme be accelerated in the interest of the customers, the economy, business stability and current employees.

23 THANK YOU