Portfolio Committee on Energy Briefing on the Approach to Distribution Asset Management (ADAM) Pilot Project 01 November 2013

Presentation Content 1.Background 2.Infrastructure Maintenance and Development 3.Factoring the Approach to Distribution Asset Management (ADAM) Programme 4.The Role of SALGA on the ADAM Programme 5.Progress to Date 6.Skills and Capacity Development 7.Action Plan in Addressing Municipal Challenges 8.Conclusion

Background  When municipalities were established and assumed responsibility for various municipal infrastructure services functions, they inherited old infrastructure some of which was way overdue for replacement. In some cases was already more than 30 years old.  This required huge investments in refurbishment of infrastructure. –In a sense municipalities inherited a liability rather an asset because by taking up these functions, they accepted a huge responsibility of replacing and refurbishing old infrastructure that was associated with the function. –The Electricity Distribution Industry (EDI) developed a significant backlog over the last couple of years in terms of electricity distribution related asset maintenance, refurbishment and strengthening.

Background (Cont…)  In December 2010, Cabinet approved the termination of the Regional Electricity Distributors (REDs) creation project, with a mandate to rather focus on resolving the regulatory problems afflicting the sector, including lack of investment in infrastructure, financial sustainability and poor service delivery.  This mandate was given to the Department of Energy (at the beginning of April 2011 this function formally became the DoE’s responsibility) –No budget allocation was made in the 11/12 financial year.

Infrastructure Maintenance and Development  During the long period of uncertainty regarding future ownership of distribution assets, there has been a significant underinvestment in infrastructure. – Some municipalities were reluctant to invest in infrastructure in a situation where there was no certainty regarding the future of such investment.  This added to inherited maintenance backlogs that also accumulated as a result of the country’s prioritization of extension of infrastructure to the unserved rather than focusing on maintaining infrastructure that served a minority. –A study done by Electricity Distribution Industry Holdings (EDIH) in 2008 estimated the maintenance, refurbishment and strengthening backlog in the EDI (Eskom and Municipalities) to be at a total of about R32 bil and growing at an alarming rate of R2.5 bil per annum 5

Infrastructure Maintenance and Development (Cont…)  The deteriorating state of the electricity distribution infrastructure is one of SALGA’s serious concerns as it negatively affects service delivery at local level. –Given this concern SALGA will continue to rigorously work with the Department of Energy, NERSA, Eskom and other key stakeholders to ensure investment in electricity distribution infrastructure coupled with maintenance and refurbishment.  The 2011 SALGA National Conference resolved to lobby for the: - –Establishment of a National Municipal Infrastructure Refurbishment Fund that will provide for the rehabilitation of municipal infrastructure at the required scale (This fund should be used to leverage private sector investment). –Establishment of national Geographic Information System (GIS) based databases and national programmes to collect data and manage information on an on-going basis on the state of infrastructure. 6

Factoring the Approach to Distribution Asset Management (ADAM) Programme  In November 2012 the DoE took the ADAM principle for decision to Cabinet for approval. Cabinet approved the following with regard to ADAM: - –Noted the Electricity Distribution Asset Management (ADAM) Turnaround Programme; –Agreed that the funding plan for the Electricity Distribution Asset Management Turnaround Programme be finalised as a matter of urgency; and –Agreed that the governance structure of the programme be clarified and that it be continuously aligned with the work of the Presidential Infrastructure Coordinating Commission (PICC) and relevant Strategic Integrated Projects (SIPs) to ensure better coordination and implementation.

Factoring the Approach to Distribution Asset Management (ADAM) Programme (Cont…)  The DoE initiated the development of a strategy to implement the Approach to Distribution Asset Management (ADAM) programme. –ADAM can be defined as a multi-year service delivery improvement initiative targeted at addressing maintenance, refurbishment and strengthening electricity network backlogs. –The multi phased “Approach to Distribution Asset Management” (ADAM) programme is aimed at dealing with EDI challenges and address maintenance backlogs, refurbishment and upgrading of the Electricity Distribution networks. –The initial work done on implementing ADAM focused on the Capital and Skills Shortages that existed in the EDI in general, hence the process will have to be conducted in phases.

The Role of SALGA on the ADAM Programme  SALGA is part of the newly established multi-stakeholder Mini Approach to Distribution Asset Management (ADAM) Steering Committee (MASC) chaired by the DoE, and will continue to lobby for a strategy to address municipal refurbishment challenges.  SALGA therefore, welcomes and supports the launch of the Approach to Distribution Asset Management (ADAM) project that has been launched in line with Strategic Integrated Projects (SIPs) 6 and 10 of the Presidential Infrastructure Coordinating Commission’s (PICCs) National Infrastructure Plan.  As part of the MASC, together with the DoE and other stakeholders SALGA is jointly responsible for the business issues associated with the Mini Adam project. –Approving budgetary strategy, Defining and realising benefits, and Monitoring risks, quality and timeliness. 9

Progress to Date  In the 1 st phase of the Mini ADAM” project, about 9 Municipal distributors were identified to receive assistance.  The majority of these municipal distributors didn’t have the resources (finance and human) to identify and develop high level electricity master plans in terms of normalizing their networks.  The “mini ADAM” phases primarily focuses on the most vulnerable municipal distributors to receive technical analysis assistance and to ensure funding for initial upgrading projects. –It needs to be emphasized that ADAM is not a “grant funding” to upgrade networks. It is a holistic process to ensure that shortcomings are clearly understood, addressed, managed and monitored by a multi-stakeholder Steering Committee.

Progress to Date (Cont…)  The total Approach to Distribution Asset Management (ADAM) pilot project budget for 2013/14 for 7 local municipalities (including 2 Metros ) is R320 million which was allocated as follows: - –NB: No further funding has been allocated in the next financial years for the ADAM programme 11 MunicipalityTotal ('000) King Sabata Dalindyebo LM (Umthatha) (EC) R Nelson Mandela Metro (EC) R Ngwathe LM (Koppies) (FS) R Moqhaka LM (Kroonstad) (FS) R Nala LM (FS) R Mangaung Metro (FS) R Sol Plaatjie LM (NC) R Tlokwe LM (NW) R Total R

Skills and Capability Development  In general there is a shortage of skills in the engineering sector –Metro’s have an ability to attract and retain specialised engineering skills, however even Metro’s tend to be out-competed by the private industries. –SALGA acknowledge that small municipalities face a severe challenges in terms of attracting and retaining skilled resources.  In an effort to assist smaller municipalities with the skills gap, the following is being done:- –SALGA has initiated a businesses-adopt-a-municipality programme. –We also encourage Metros and Secondary Cities to partner with and support smaller municipalities. 12

Action Plan in Addressing Municipal Challenges  In an effort to assist and support municipalities, SALGA has put in place the following Action Plan:- –Provision of hands on support through the SALGA/AMEU National Electricity Technical Task Team and the CoGTA Municipal Infrastructure Support Agency (MISA); –On-going workshops in collaboration with relevant stakeholders on infrastructure maintenance and refurbishment; –The need to strengthen collaboration between SALGA, DoE, National Treasury, CoGTA, NERSA, AMEU and the private sector in addressing challenges experienced by municipalities; –Encouraging Metros and other performing secondary cities to partner with and support struggling / smaller municipalities ; –Dealing with the human resource constraints within municipalities by initiating accredited training in partnership with the Energy and Water Sector Education and Training Authority (EWSETA) and other relevant Electrical Engineering Training institutions. 13

Action Plan in Addressing Municipal Challenges (Cont…)  During October 2013, SALGA tabled a submission at the National Treasury Budget forum. The key recommendations were that National Treasury in consultation with SALGA, and other key stakeholders address the current municipal infrastructure financing gap through the following mechanisms:- –Infrastructure Renewal: exploring options of funding Municipal Infrastructure Renewal fund/grant and a Local Government Loan Fund –Municipal Bulk Infrastructure: the establishment of dedicated/conditional bulk infrastructure grants for electricity, solid waste, water and sanitation, and roads 14

Conclusion  With ADAM being funded from the fiscus, this will allow municipalities to start using existing tariffs to cover the costs related to the provision of the service, resulting in the speedy delivery of universal access to electricity.  The total Approach to Distribution Asset Management (ADAM) pilot project allocation should be seen as a start of addressing the EDI’s infrastructure backlog. –It is a Critical Emergency Intervention which will be part of implementing the overall ADAM strategy. –The DoE should also clarify the application criteria and allocation process or guidelines as to how this funding should be accessed and spent. –The programme should be aligned with the work of the Presidential Infrastructure Coordinating Commission (PICC) and relevant Strategic Integrated Projects (SIPs) to ensure better coordination and implementation. 15

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