End of ESCOM monopoly

QUOTE OF THE WEEK

"Given the frequency with which power cuts have occurred and the 14%
price hike of electricity, bonuses are not warranted… their
performance for the year ending March 31 was disappointing and any
talk of bonuses would be unfair to the consumer."

DA public enterprises spokesperson, Manie van Dyk comments this
weekend on reports that Eskom management would be paid performance
bonuses, despite the electricity crisis plaguing South Africa.

DA CALLS FOR AN END TO ESKOM'S MONOPOLY

The Democratic Alliance last Thursday welcomed an invitation extended
by the office of the Department of Minerals and Energy for DA minerals
and energy spokesperson, Hendrik Schmidt to meet with the Minister of
Minerals and Energy, Buyelwa Sonjica, to discuss the party's proposals
for energy sector reform.

"We applaud statements from spokesperson Bheki Khumalo that government
is open to arguments that the regulatory framework for independent
power producers needs to be made more attractive, and that government
must look at adjusting the regulatory regime," he said.

This announcement came in the wake of the release of a set of
proposals by the party, prompted by the prospect of South Africa
facing decades of electricity shortages unless Eskom's monopoly of
power supply was broken.

Presenting the proposals for electricity sector -
http://sheddinglight.wordpress.com/2008/04/10/videocast-da-press-conference-on-eskom-restructuring/
reform in Cape Town last Monday, Schmidt said the only permanent
solution to the country's electricity woes lay in the unbundling of
transmission from generation and in creating space for private players
to enter the market on competitive terms.

"Despite the government's identification of private sector
participation in the electricity sector as a key component of its
plans to pull the country out of its electricity crisis, a prohibitive
regulatory environment continues to keep independent power producers
at bay and will continue to do so unless steps are taken to dismantle
Eskom's monopoly," said Schmidt.

The government has set a market limit of 30 percent for independent
power producers and insists that only Eskom will be allowed to buy the
electricity generated by independent producers.

Potential investors thus face the double hurdle of relatively low
electricity prices on the one hand and being forced to sell power to
Eskom - their competitor - on the other.

This, argues Schmidt, is keeping independent producers from investing
in South Africa's electricity sector.

Eskom announced last week that US power producer AES had withdrawn
from an estimated R5-billion tender to build and operate two
open-cycle gas-turbine peaking plants, citing changes to the project
parameters after the tender was awarded as the reason for its
decision.

Schmidt went on to say that despite Eskom's R350 billion capital
expenditure programme, its reserve margin - the difference between
peak electricity use and installed capacity - was expected to decline
from 5.90 percent at present to 3.50 percent in 2014, Ideally it
should be 15 percent.

By the time Eskom's first new coal-fired power plant was operational
in 2012, the population and energy use would have increased markedly,
leaving Eskom once again lagging behind in electricity provision.

The utility's new open-cycle, diesel-fired turbines were also
extremely expensive to operate and would add significantly to Eskom's
operating costs.

The party proposed drawing up a timetable for reducing Eskom's market
share, from generating 95 percent of the country's electricity at
present, to a minimum of 35 percent by 2015. At the same time, more
independent producers should be encouraged to enter the liberalised
market.

"Although Eskom has taken steps to mitigate the situation, the utility
is yet to suggest a permanent solution. As such, even while in the
grip of the crisis, the gradual liberalisation of electricity
generation will provide as rapid a recovery as possible."

"Eradicating Eskom's monopoly is South Africa's best long-term
approach," Schmidt said.

IOL: http://www.iol.co.za/index.php?set_id=1&click_id=3053&art_id=vn20080408060211118C151827