To turn around the fortunes of Nelson Mandela Bay’s beleaguered electricity and energy department, the metro wants to establish a dedicated business unit to oversee all operations to ensure it is financially and operationally sustainable.
The department provides a trading service by selling electricity to consumers, which has historically been a key source of revenue for the municipality.
The National Treasury has proposed a turnaround strategy to address the declining trading services, such as the sale of water and electricity, in municipalities across SA.
The city has been battling electricity losses for years attributed to illegal connections, meter tampering, unbilled faulty meters, vandalism of municipal infrastructure and ratepayers simply not servicing their accounts.
During the 2022/2023 financial year, non-technical electricity losses amounted to R697m.
The electricity and energy committee was presented with four options on Monday, with the report noted by councillors.
Other options included doing nothing, appointing an independent board to oversee electricity trading, or reinforcing the current structure of the trading service.
The business unit was touted as the best option but councillors asked for more details.
This involves creating a fit-for-purpose structure with a single point of management accountability integrated into the institution.
“The greatest advantage of this is allowing the trading service the required autonomy, removing the historic institutional impediments hampering the functioning of the trading service,” the report says.
According to the report, The National Treasury concluded that the electricity trading services reached a point where a total overhaul was required.
“The municipality and [National Treasury] explored all the options extensively when the water turnaround strategy was being developed.
“The option of creating a business unit within the municipality structure was decided on as the most suitable and potentially most effective of the available options.
“The electricity trading service was influenced by those deliberations to follow the same route and the decision to create an electricity trading service business unit was resolved by senior management.
“The single point of management accountability will directly manage customer trust and satisfaction, sound finances, asset maintenance and operations, asset creation and motivated people systems and tools.”
The report identified historic underinvestment in infrastructure as a key factor contributing to the decline in revenue.
“In recognising the glaring need for substantial investment in infrastructure, the National Treasury has resolved that the traditional approach of providing grant funding, albeit at a rate well below what is desperately required, with relaxed conditions would no longer be sustainable,” the report says.
“[The National Treasury] has thus concluded that to mitigate against an imminent threat of total collapse of trading services, the national government needs to join forces with municipalities to develop long-term sustainable solutions aimed at addressing the substantial, persistent threat of underinvestment and underperformance of trading services.”
The proposed turnaround strategy came to light because:
- The financial performance of trading services is critically poor in SA;
- Trading services are not run as a business, lacking a single point of accountability;
- Technical capabilities are lacking to manage and run an effective electricity business;
- Procurement of essential services is compromised;
- Cities suffer from a lack of legitimacy and credibility; and
- Cities have been underinvesting in the maintenance and rehabilitation of infrastructure for years.
Electricity and energy acting executive director Bennett Tlali said the municipality must develop a draft business plan outlining the unit’s operations.
This should align with the principles of single point management accountability for the electricity and energy department, which is expected by October 31.
Electricity and energy political head Zanele Sikawuti was not impressed with how the report was brought to the committee a month before the deadline.
“While we support anything that will help our department, we can’t be pressured into a decision when this matter was brought to the city as early as April.
“At the next meeting, we need a report on why this was not brought up earlier and who is responsible so that heads can roll.”
ANC councillor Bulelani Matenjwa questioned if the business unit would not overtake the functions and processes of the department.
“Since the business plan hasn’t been developed, can we first get the draft so we can understand what we are dealing with.
“My understanding is that the directorate is a business unit within the municipality and the single point of accountability is the city manager, if this is the case then what is the point of this.”
Matenjwa said if there was going to be a new business unit it would require more staff.
DA councillor Ondela Kepe said role players should be invited to a workshop as the proposed options would affect the city’s staff establishment.
“I understand there are stringent timelines on this matter but we hope we won’t see this coming as a flyer in the next council meeting before this committee sees a draft business plan.”
ACDP councillor Lance Grootboom said details were excluded from the report such as the factors that contributed to the decline of the electricity trading service.
“We also would like to know how the city plans to address the historical underinvestment, if we have looked at how other municipalities run their trading services, and how this option will address the existing gaps in the management system.”
Grootboom said they also needed details about the operational changes that would come with the business unit.
Retail and commercial management senior director Mvuleni Bukula said the business unit option was to design a system that tracked shared services from budget and treasury, supply chain, corporate services and security.
“With this option, the business is ring-fenced with annual financial statements that reflect all necessary items to improve the business unit’s profitability.”
Bukula said the strategy had been successfully implemented for the water trading service at the eThekwini municipality in KwaZulu-Natal.
“On the staff establishment issue, the model by [the National Treasury] overlooks all other interventions and there’s an agreement at a national level with [the National Treasury] and Cogta [co-operative governance and traditional affairs] regarding the options.”
Bukula said details about the other options and answers to some of the councillor questions would be provided at a workshop on October 9.
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