centlec (soc) ltd (addressing edi service delivery challenges) centlec delegation (soc) ltd joint...
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CENTLEC (SOC) LTD(Addressing EDI Service Delivery Challenges)
Centlec Delegation
(SOC) LTD
Joint Hearing between PC on Energy & PC on Cooperative Governance and Traditional Affairs
26 July 2012
Who are We and What's Our Story ?
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Background
Centlec (SOC) Ltd was established in April 2004 as a municipal entity
wholly owned by the Mangaung Local Municipality.
It provides an electricity distribution service in the Free State to 5 local
municipalities (Mangaung, Kopanong, Naledi, Mantsopa and Mohokare)
Other value added services provided by Centlec include:
Training and Development
Support to struggling municipal electricity distributors in the Free State
Embedded generation (Soon to be re-commissioned)
Centlec has always been the greatest supporter of EDI restructuring
objectives
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Why was Centlec created?
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1. To maximise shareholder value.
2. To strengthen the strategic and operational capacity of Centlec.
3. To position Centlec as the key player during the transitional period of the Electricity
Distribution Industry (EDI) restructuring
4. To ensure good corporate governance
5. To ensure the financial viability of Centlec.
Cabinet Decision and its Implications
On the 8th of December 2010, cabinet took a decision to immediately stop
the restructuring of the EDI industry.
IMPLICATIONS
New industry leaders needed to address EDI challenges
A new strategy and approach needed
A new willingness and commitment by stakeholders to address EDI
challenges is needed
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EDI Objectives
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To provide low cost electricity to all consumers, with equitable tariffs for each customer
segment;
To provide 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;
To meet 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.
Even though the restructuring process by EDI Holdings has been stopped, the objectives that it was meant to address remain valid and urgent. These are:
Successes and impact to date
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Successes to date
Reduce losses - In 1991 the losses in SFS towns 35% - now
12%
Increased delivery on electrification + cost benefit
R92,7m with 101,1% performance past 7 yrs
Collective bargaining power & economy of scale
2011 – own financial system (true financial impact, good
governance, accountability, clean audit)
Collection rate 82,9%
Arrears collected R191m8
Role of technology
Meter readings by cell phone – audit trail
Platform for customer information on cell phone
AMR meters for bulk customers
GIS visualisation – debt and meter type
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Technical Training
Centre capacity – 70 at a time
Training completed 1418
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Technical Training Details
2006 - 2012 Financial Year Totals.doc
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Lessons learned
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Lesson 1: No Constitutional change required
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The Constitution does not say that a municipality itself must provide services; it gives municipalities the right to administer the matters assigned to them and then compels municipalities to ensure the provision of sustainable services. In other words, the municipality must take responsibility for the provision of services whether those services are provided by itself or on its behalf by another service provider.
MSA: Section 76 provides municipal services through either an internal or an external mechanism and also municipal entities operating under the sole or shared control of a municipality. If the service is to be provided through an external mechanism, including provision of the service must be in accordance with a service delivery agreement concluded between the municipality and the external mechanism.
Lesson 2: Service Delivery Agreement
Service Authority
CENTLEC
Service Provider
TariffsElectrificationMaintenance & RefurbishmentIDP
Compliance
Service DeliveryAgreement (SDA)
Service Provision
Delivery
Kopanong
Naledi
Mohokare
MantsopaLETSEMENG
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Challenges
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Capital Requirements
Electrification shortfall – INEP allocation for
munics smaller than for Eskom
Infrastructure upgrades
Vehicles to render the service
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Tax Exemption
Centlec applied for tax exemption – not granted
yet
Impact – 30% tax - remove cash from community
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Eskom vs munic supplies
Electrification in townships done by Eskom
Tariff in communities differs
Eskom 60,83c/kWh
Munic 82c/kWh
Service delivery standards differ
Eskom surcharge in winter months 235%
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Performance evaluation by NT
MFMA requirements – performance of entity
evaluated with munic
Capital requirements evaluated with munic
No mechanism for business case implementation
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Eskom Bulk Tariffs
Average Purchase cost Mangaung – 54,08c/kWh
Average Purchase cost SFS
Naledi – 72,76c/kWh
Mohokare – 70,74 c/kWh
Kopanong – 65,37 c/kWh
Average purchase cost SFS – 69,62c/kWh
Average SFS purchase costs 28% higher
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Proposed Solutions
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Capital Requirements
Consider alternative funding models (ADAM
supported)
MFMA requirements – performance of entity
evaluated on its own
Capital requirements evaluated on its own
Create mechanism for business case
implementation
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Tax Exemption
Centlec to be exempted from tax - NT to intervene
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Tariff Difference SFS towns
Apply Municipal Powers and Functions Act
provision with surcharge of 8 - 10%;
or
Transfer Eskom areas to munics without
compensation (funded originally by Nat Gov)
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Performance evaluation by NT
MFMA requirements – performance of entity
evaluated on its own
Capital requirements evaluated on its own
Create mechanism for business case
implementation
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Way Forward
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Way Forward
Adopt Centlec model for country – its already
working (Ord 8 of 1962 as amended 2004)
Implement model anchored to metro in each
province
Address listed challenges (tax, capital, tariffs,
supply areas) on national level
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Pula !!!
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