The South African towns where electricity supply is privatised

It’s hard to imagine – four small rural towns in South Africa where the electricity grid is in “very good condition”.

Achieving this has seen the municipality they fall under invest an average of around R11 million to upgrade the network every year for the last 11 years (a total of R120 million). Tariff increases have been below those allowed by Nersa. Its Eskom bill is up to date. And this is not in the Western Cape.

This is real, and given the dysfunction in small-town municipalities it won’t be a surprise to learn that this is being delivered by a private sector distributor – in a rather extraordinary scenario.

In the approach, a private entity – Rural Maintenance – would take over the distribution of electricity and billing in the municipality (tariffs are still set by the municipality, which has been under administration since 2017).

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The liability of the bulk electricity supply going forward would be transferred to Rural but, importantly, the network assets would remain the property of the municipality (excluding Namahadi in Frankfort, where customers are directly supplied by Eskom).

‘No privatisation’ proviso

In the municipality’s bid compliance notice, it stressed that there would be “no privatisation”. The network (and any assets added to it) would be transferred at no cost to the municipality at the end of the contract period.

The contract runs for 25 years and is nearly halfway through. Aside from the R120 million invested in the network, Rural has paid R22.2 million in royalties to the municipality and a total of R709.4 million to Eskom (on behalf of the municipality) for bulk electricity.

Bad debt write-offs stand at 0.5% (65%) of the total base of nearly 13 000 customers.

The number of full-time staff members has grown from 12 to 40 over the 11 years. The network is regularly audited by Nersa, and Rural says its technical and non-technical losses are “at around 6%”.

This is remarkable.

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It is not uncommon for this to be substantially above 20% in comparable municipalities. The technical and non-technical losses (effectively theft in the case of the latter) at Joburg’s City Power totalled 29% in 2020/21, although this is across an enormous network.

Own load shedding ‘methodology’

Rural convinced Eskom to allow it to implement a different load shedding “methodology” in a three-month trial from 1 February.

Instead of switching off the entire town of Frankfort, it has divided it into four main zones, with zones being switched off for one-and-a-half to two hours instead of the ‘standard’ two to two-and-half hours, as is the case in the rest of the country.

It says: “We need to look at ways to reduce the impact on different consumer types who have different needs. A one size fits all approach was ok when load shedding was only every now and again – but this approach is not acceptable when continuous load shedding is expected for the next two or three years.”

Under the new methodology, Rural controls load shedding in Frankfort and ensures that the municipality’s water and sanitation pumps run 24 hours a day.

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It says that because the overall network remains energised (versus the town being switched off by Eskom), this will reduce cable theft. There is already evidence that this is working.

Food producers among those prioritised

The two large power users in Frankfort are catered for under the new methodology.

Rural says that “typically, such a producer prefers to be off for nine hours and on for 15 hours during a stage 6 load shed period. (This will not work for residential or commercial users but is critical for food production)”.

Rural’s trial load shedding schedule caters for this, as these large power users are on their own high voltage feeders (and therefore on their own two additional ‘zones’ or blocks).

There’s more … 

The next step is to use some of the 3 780kW being generated by a solar plant that has been constructed outside the town by 19 community members and Rural Maintenance.

It says Frankfort uses around 6 500kW at peak. An additional 1MWh battery pack is in place, which Rural uses to “reduce strain on Eskom during peak times”.

Blueprint?

Rural is headquartered in Pretoria and was established in 1993, when it provided electricity maintenance services for Eskom’s rapid electrification programme.

Since then, in addition to Mafube, it has taken over operations and maintenance for three municipalities in Namibia.

Local councils themselves would understandably not be big fans of an idea like this, as they would be deprived of a significant portion of their revenue.

By and large, this income is used to pay salaries and not Eskom, leading to situations such as 16 municipalities in the Free State owing Eskom R17 billion (as at October 2022).

However, not only is the contract watertight, but Eskom is surely unlikely to want the municipality reassuming the role given that it still owes the utility millions from more than a decade ago. In 2011, it owed Eskom R23 million. By 2019, this had reportedly spiralled to R52 million.

In 2020/21, Mafube’s average monthly collection rate was 20% (R2.1 million) which is not enough for it to meet a salary bill of R9.1 million.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.