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 INTRODUCTION
Electricity Supply Chain POWER STATIONS GENERATION Transmission Lines TRANSMISSION SUBSTATION ELECTRICITY DISTRIBUTION INDUSTRY (EDI) Reticulation Lines TRANSMISSION (765/400/275 kv) DISTRIBUTION (132/88/66/44/33 kv) Distribution Lines SERVICE CONNECTION Reticulation LV Lines 380/220V Reticulation HV Lines 22 and 11kV DISTRIBUTION SUBSTATION
EDI 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 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 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 & PERFORMANCE
EDI 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 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) 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 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) 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 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 Distributors) Municipality # 3 # 5 # 11 # 14 # 19 No. of Outages (Monthly) 0 (Planned) 20 (Unplanned) 20 (Planned) 30 (Unplanned) 6 (Planned) 6 (Unplanned) 8 (Planned) 150 (Unplanned) 1 (Planned) 3 (Unplanned) Average Downtime per Outage 3 hrs to 1 week Planned < 8 hours Unplanned < 1 hour 6 48 hours Not available ½ hour # 21 2 1 Hour # 22 Not available Not available # 23 Source: EDI Holdings Ringfencing Insights 1 (Planned) 2 (Unplanned) 2-3 Hours 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 in many cases (rather then preventative maintenance) as 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. Slide 11
Debtors Days and Bad Debt Challenges D eb to rs Days 160 140 120 100 80 60 40 20 - Cape Town George Ekurhulen i NMBM M Buffalo City City Power Tlokwe ethekwini Msunduzi Tshwan e Wt.Average 07/08 08/09 Debtors Days - significant variation between the various municipal distributors. Notable increase for one specific munic of 27 days (07/08) to 142 days (08/09) - could be the result of a decision not to prosecute customers in arrears. Average Debtor Days: 74 Days Bad Debt / Debt Written O ff (R m illion) 300 250 200 150 100 50 - -50-100 Cape Town George Ekurhuleni NMBM M Buffalo City City Power Tlokwe ethekwini Msunduzi Tshwane Wt. Average 07/08 08/09 Bad Debt - significant increase in bad debt (for municipal distributors that disclosed relevant information). The weighted average bad debt increased by 74% from R61m (07/08) to R107m (08/09). Total bad debt has risen 93% from R311m (07/08) to R600m (08/09). Source: EDI Holdings 2010 Survey
Technical & Non Technical Losses Management ENTITY TECHNICAL (R bn) NON TECHNICAL (R bn) TOTAL (R bn) Eskom Dx 1.444 2.404 3.848 Municipalities 0.856 4.082 4.938 TOTAL 2.3 6.486 8.786 Source: EDI Holdings
Summary 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; 35% average vacancy rate; Skills recruitment, retention and development.
INVESTMENT REQUIREMENT (ADAM as Reference)
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 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 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.
National Picture: EDI Infrastructure Investment Backlog by RED region Entity Total Backlog Maintenance Refurbishment Short term Strengthening RED ONE (City of Cape Town) RED TWO (Ekurhuleni) RED THREE (Nelson Mandela Bay) RED FOUR (City of Johannesburg) RED FIVE (ethekwini) RED SIX (Tshwane) R 3,851,578,245 R 385,157,825 R 1,155,473,474 R 2,310,946,947 R 5,132,373,764 R 513,237,376 R 1,539,712,129 R 3,079,424,259 R 2,186,296,025 R 218,629,602 R 655,888,807 R 1,311,777,615 R 6,413,148,398 R 641,314,840 R 1,923,944,519 R 3,847,889,039 R 4,158,350,649 R 415,835,065 R 1,247,505,195 R 2,495,010,389 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
Indicative Current Investment per Financial Year Entity Name TOTAL Current 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 Bay R 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 2008 Data
Conclusion 1 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; 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 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, 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 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 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. Note: ADAM Report was presented to ASGISA, IDTT on Energy, CoGTA Tech MINMEC, NERSA and various industry stakeholders
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