Business Day (Johannesburg)

3 May 2007

South Africa: Shock Audit Warns Country of Spiraling Power Crisis

Johannesburg — THE National Energy Regulator of SA (Nersa) has painted a grim picture of the state of SA's electricity distribution infrastructure, with the networks of some municipalities in a "poor state" while others were found to be not viable in the medium term.

In an audit report released yesterday, Nersa said initial capital expenditure of R850m, followed by an investment of R422m annually, was needed to ensure efficient distribution of electricity.

The report comes against a backdrop of renewed fears of power cuts this winter, and coincides with a massive blackout on Johannesburg's East Rand, affecting homes and businesses.

The regulator last year ordered an audit of 11 large distributors following a nationwide spate of electricity blackouts.

While electricity supply concerns so far have centred on Eskom's failure to develop adequate generating capacity to keep pace with growing demand, the report has now also thrown the spotlight on SA's neglected distribution systems.

It sounds further warning bells to businesses and households that unless the problem of distribution is dealt with, more power blackouts can be expected.

Businesses have already lost millions of rands as SA's electricity supply system failed during a string of power outages that started in 2005.

And business outside the main economic hubs of the country should prepare for further disruptions as the distribution networks of small municipalities in particular are predicted to falter.

According to the report, the refurbishment backlog at the end of 2005 for utilities was estimated at R431m.

"That figure grows every year that no refurbishment takes place, compounding the problem," said Nersa chairman Collin Matjila, estimating that the average requirement to maintain present service levels in future was R422m, to which the R431m had to be added.

But even so, the report questioned utilities' technical ability to "plan, engineer and install the assets in question".

The average age of all distribution plant in service was 25 to 30 years. This was young by international standards, and the issue of renewing and refurbishing plant and equipment in SA was therefore a new and growing problem, the report found.

The woes besetting SA's distribution networks range from inadequate investment and maintenance to a dire lack of the necessary skills to operate systems effectively and poor financial planning and bookkeeping, the report said.

Measured against international benchmarks, the recovery times of SA's utilities were also found to be much longer, while data collection and reporting were below par. The report furthermore warned that the average age of senior staff was increasing, which meant the skills woes were set to worsen.

The report highlighted the double whammy SA faced with electricity supply and pointed to bad planning and inadequate policies, an analyst said.

"Transmission and distribution networks should have been maintained but they were not and there is no short cut to fixing the problem," independent analyst Andrew Kenny said.

The report does not mince words and pointed out that systems of large municipal undertakings and metros were "faltering" with the lack of investment now evident, and that the dearth of skilled staff had resulted in the "embrittlement of management resources and loss of control over essential technical elements".

Small municipalities in particular came in for flak, with the report hinting that some of these undertakings were on the brink of collapse.

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