S. Africa Seeks $18 Billion for Municipal Power-Grid Boost

(Bloomberg) -- South Africa’s presidency said it plans to set up a body to oversee raising 319 billion rand ($18 billion) that it estimates it needs to repair and upgrade the country’s municipal power grids. 

The Just Energy Transition Municipal Forum and its secretariat will also train municipality staff and ensure the poor get access to a free electricity via a government grant, officials at a conference near Johannesburg said on Monday. 

The forum is an attempt by South Africa’s presidency to improve services in the country’s municipalities, many of which are dysfunctional, and to prepare them for the introduction of more renewable energy in coming years. 

“The municipal grid system needs to be upgraded, modernized and extended,” President Cyril Ramaphosa said at the conference. “The energy generation of the future requires systems that are fundamentally different in terms of design, capability and operation.”

Currently, about 80% of South Africa’s electricity comes from coal-fired power plants run by the state utility, Eskom Holdings SOC Ltd.

Already, major municipalities such as Johannesburg — the country’s biggest — subject residents to frequent outages due to equipment breakdowns. In poorer areas, where grids are overloaded, power is regularly shut off for hours in a program known as load reduction. 

“There are hours in the day when multitudes of our people don’t have access to power,” Electricity Minister Kgosientsho Ramokgopa said at the conference. 

‘Exponential Increases’

Nevertheless, power prices have risen 600% since 2006, he said.

“The exponential increases in the tariffs is untenable, it can’t be sustained,” Ramokgopa said. 

The country’s municipalities need 200 billion rand to catch up with maintenance, a further 45 billion rand to connect more people to electricity and 73 billion rand to modernize urban grids including the rolling out of charging stations for electric vehicles, a presidency presentation showed. 

South African municipalities are already 82 billion rand in debt to Eskom and struggle to meet the costs of providing reliable water and power services amid a litany of allegations concerning corruption and incompetence. Customers including residences and businesses owe them 345 billion rand. 

To compound that problem, the Electricity Regulation Amendment Act — which Ramaphosa signed into law this month — strips municipalities of some of the rights they hold to distribute electricity, potentially reducing their income.

“This raises an existential crisis for municipalities,” said Xola Pakati, the deputy president of the South African Local Government Association. “You are taking away the income from the municipality.”

The forum within the presidency will seek to help municipalities raise the money from sources including boosting private participation in the provision of power. It didn’t provide further details on how it will raise the money. 

“Money is not a problem — the question is the ability to mobilize that money, the ability to spend that money on good things and to be accountable,” Deputy Finance Minister David Masondo said.

Those financial constraints are also playing a role in limiting the access of poor South Africans to a grant provided by the National Treasury through municipalities to finance the provision of free electricity for the indigent. 

The National Treasury gave Johannesburg, a city of about 5 million people, 7.6 billion rand this financial year to provide free services to an estimated 1.1 million indigent households including, 1.8 billion rand for electricity. That doesn’t match the amount of free power the municipality is providing.

City Power, the municipality’s distribution company, said it provides some free electricity for just under 11,000 households and Eskom gives free electricity to a further 6,400 on behalf of the city. The Johannesburg metropolitan area has about 1.8 million households. 

“The free basic electricity subsidy for indigent households is one of the most important policies we have implemented to tackle poverty since the advent of democracy,” Ramaphosa said. “In a number of municipalities, it is not being used to good effect.”

(Updates with detail on municipal finances in 11th paragraph.)

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