Story audio is generated using AI
The cabinet this week approved a draft policy to reform electricity pricing in South Africa — a major step reflecting the unbundling of Eskom and the growing role of independent power producers in the market.In essence, the proposed policy shift provides a framework for South Africa to move away from its current, state-controlled electricity system towards a competitive energy market.The energy reforms, unfolding alongside an overhaul of the water sector, will have far-reaching implications for South Africa’s municipalities, which are constitutionally mandated to provide basic services such as water and electricity in a sustainable, efficient and equitable manner. However, over the past decade, the operating environment for municipalities has become increasingly complex, placing growing strain on their ability to deliver these services effectively.The reforms will add to this complexity, forcing a sector that has struggled over the past three decades to reimagine its role in response to a rapidly changing regulatory environment.The severe financial pressures facing municipalities, which directly affect the sustainability of water and electricity services across South Africa, are well documented.Electricity distribution, historically a key revenue-generating function, is under increasing strain due to rising bulk purchase costs from Eskom, coupled with declining electricity consumption driven by energy-efficiency measures and the rapid uptake of embedded generation. This has eroded municipal revenue bases and weakened cross-subsidisation models that have traditionally helped fund other municipal services, including water.The challenges do not end there. Municipalities are also grappling with growing consumer debt, weak revenue collection and worsening affordability constraints among households. In the water services sector, cost recovery remains a persistent challenge, with many municipalities unable to recover their operational and maintenance costs, let alone fund capital investment. These financial pressures have resulted in deferred maintenance, ageing infrastructure and growing service delivery backlogs.Reforms to the electricity supply industry, the introduction of competitive markets and Eskom’s unbundling will require municipalities to navigate a far more complex environment involving independent power producers; wheeling arrangements; and new tariff structures. My local government, my home (Nolo Moima) Forced to evolve with the changing landscape, the South African Local Government Association (Salga) — the unitary body representing all 257 municipalities in South Africa — this week launched a market-sounding exercise aimed at helping municipalities adapt to reforms affecting their two most important service sectors: water and electricity.Salga is seeking private-sector expertise to develop a blueprint that municipalities can use to plot their way forward.The organisation concluded that, given the scale and complexity of the challenges facing municipalities in the water and electricity sectors, there is an urgent need for structured, compliant and expert-led section 78 assessments.Section 78 assessments are statutory reviews that municipalities undertake before deciding how a municipal service should be delivered. They evaluate the costs, capacity, and suitability of internal and external service delivery mechanisms before a municipality decides whether to continue providing a service itself or appoint an external provider.“These assessments will enable municipalities to critically evaluate their current service delivery models, objectively assess viable alternatives, and make evidence‑based decisions that enhance sustainability, improve service delivery outcomes, and respond to the evolving policy and regulatory landscape while fully respecting municipal executive authority and council decision‑making mandates,” Salga said in its request for proposals.“Many municipalities lack the in-house technical, financial, legal, institutional and human resources capacity to undertake credible and impartial assessments in these service areas. “The appointment of a suitably qualified service provider to support this process is therefore essential to ensure technical rigour, legislative and regulatory compliance, and credible outcomes that can withstand regulatory, political and stakeholder scrutiny, while meaningfully supporting municipalities in navigating complex service delivery reforms without destabilising essential services.”A significant portion of municipal water, sanitation and electricity infrastructure is ageing and poorly maintained. In the electricity sector, this is reflected in high technical and non-technical losses, frequent outages, and network constraints that limit the integration of new generation capacity. In the water sector, high levels of non-revenue water — often exceeding 40% in some municipalities — reflect systemic inefficiencies, including leaks, illegal connections and inadequate metering. The private sector expertise Salga is looking for will be expected to provide support to municipalities to undertake section 78 assessments for water services and electricity services, and guide them through the decision-making process by “providing access to a co-ordinated pool of contracted expert resources as required”. The service provider will also be expected to recommend a service delivery model, supported by clear evidence, and prepare draft council reports, resolutions and decision-making packs.Business Times
