Eskoms Comments on the ISMO Bill Presentation to
Eskom’s Comments on the ISMO Bill Presentation to the subtitle Portfoliostyle Committee on Energy Click to edit Master 16 May 2012
Content Introduction Overview of Eskom comments Key Issues Conclusion 2
Introduction • • Eskom supports objectives of the Bill. The private sector has an important role to meet the growing power demand “to keep the lights on”. The ISMO Bill can provide improved certainty for all participants with regard to Government’s intent with the electricity sector. Therefore the initiative to embark on the process is supported. 33
Critical Success Factors – Holistic Approach • • • Government • Legislation and regulation • Creating certainty for market participants • Financial support of ISMO • Creating the regulatory environment to mitigate financial risks Eskom • Re-negotiate (if required) and secure debt covenants • Security of supply Implementation • Joint Do. E, DPE, National Treasury and Eskom implementation strategy • Phased roll-out of ISMO duties • Achieving enabling milestones for each step 44
Key issues Click to edit Master subtitle style
Clarity of end state Restructuring cannot take place in a vacuum. It needs to be done for a particular purpose and in pursuit of determined objectives. 66
Phased approach • • Essential that the establishment of ISMO does not affect security of supply and therefore Eskom supports a phased approach. Phasing must be based on the achievement of certain milestones before progressing to the next phase. Benefits: • • Will allow Government the opportunity to clarify the long-term vision and end state. Will permit controlled restructuring – implementation while ensuring security of supply. • Permits gradual transfer of responsibilities and mitigation of risks. • Balances restructuring process while ensuring security of supply. 77
Phasing Duties Building blocks: Market Operator Energy Planner: P 1 Feasibility Unit: P 1 Facilitator: P 1 Organisational Type Eskom Holdings / SMO Division System and Market Operator Division in Eskom Subsidiary: ISMO as SOC: Spin off the System and Subsidiary Market into an Operator Administrator: independent Division in Subsidiary in P 1 State Owned Wholesaler Eskom : Eskom with Company: . P 1. 1 – P 1. 3 (Migrate Subsidiary A A Dispatcher/ Wholesaler Board: All l l System ISMO t and System t Operator: P 2 A e e Operator building Customers: r into Division) l r blocks P 3 t n Implementation of each phase is subject to the n agreed key-enablers / milestones being in place. e incorporated a a t r n t
Key Milestones • • Transfer of Energy Planner and procurement functions – dependent on appropriate governance being established. Transfer of wholesale function - dependent on financial and contractual issues being addressed. Transfer of System operator – dependent on adequate system capacity being created. Transfer of customers – dependent on mechanism to manage cross-subsidies, loss of customers and financial and contractual matters being addressed. 99
Progress • Eskom has already undertaken initial steps towards ISMO: • • Ring-fenced identified activities within separate Eskom Division; working with DPE towards establishing an ISMO Subsidiary in Eskom Enterprises to perform initial duties of ISMO; and Eskom plans to second staff, resources and support services to ISMO. It is expected that at a time determined by Government this subsidiary will become the separate state owned company contemplated in the Bill. 1010
Clarity regarding customers • The Bill needs to clarify: • • • if the definition of “key industrial customers” will be retained; if ISMO will sell to these customers or only Transmission connected customers; and which municipal distributors ISMO will sell to A clear definition is essential to ensure that customers are unambiguously allocated to ISMO, Eskom or other licensed distributor. Clarify if these customers will have the right to choose their supplier. 1111
Financial sustainability • Capitalisation. • Government support framework. • Loan covenants. • Manage cross-subsidies in tariff. • Loss of customers for Eskom and implications. • Asset values on transfer. 1212
Contracts • Increased transactional complexity of transferring customers to ISMO needs to be managed : • • • Contracts will have to be separated into energy and network services. The interaction between these and other contractual requirements needs to be considered, possibly through market rules devised by NERSA. The Bill may have to provide legal mechanisms for unbundling existing supply contracts and compelling ISMO customers to purchase energy from ISM. O 1313
Transfer of employees • The section dealing with the transfer of employees should be deleted and the provisions of the LRA relied on. 1414
Governance • • It is recommended that the framework of the Companies Act and the PFMA be recognised instead of attempting to selectively restate the applicable provisions in the Bill. The Bill is overly prescriptive regarding matters that can dealt with in the MOI of ISMO: • • • Matters related to the ISMO Board, e. g. sections 3. 3, 5. 3, 18, 21, 22, 23 & 24; for example: S 26(1) constrains the ability of Board to delegate differently, alternatively; and are the responsibilities of appointing staff only for the Chief Executive? 1515
Establishment • • The Bill should allow for the ISMO to be established through the take-over by the state of the subsidiary created by Eskom. Alternatively, it should allow for the transfer of the subsidiary from Eskom to a company established by the state. 1616
Conclusion • Eskom supports the objective sought to be achieved by the Bill. • The policy framework needs to clarify the end state. • • The process should be phased to ensure that security of supply is not affected while allowing for the further introduction of private participants. The transition needs to ensure the financial viability and sustainability of the industry. 1717
Thank You Click to edit Master subtitle style
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