To prepay or not to prepay Eskom – that is the question…

May 5th, 2015, Published in Articles: EE Publishers, Articles: Energize, Articles: Vector

 

In the first two weeks since his appointment, some questionable public statements made by Eskom’s new acting CEO, Mr. Brian Molefe, make one wonder whether he is receiving sound information from his executive team. The minister of Public Enterprises, Hon. Lynne Brown, seems to have had similar problems.

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After a presentation to the Public Enterprises parliamentary portfolio committee, and a media briefing thereafter that reeked of unfounded confidence and hubris, Mr. Molefe suggested that the solution to Eskom’s financial woes would be to bypass municipal electricity distributors and supply all customers of electricity in South Africa – domestic, commercial, agricultural and industrial – directly, thus extending its monopoly.

Local government, in the form of municipalities, have the constitutional right to distribute electricity. Like Eskom Distribution, they purchase electricity in bulk from Eskom, operate a distribution network, and deliver electricity to residents and businesses embedded in their geographic service areas. Municipalities use surpluses from this activity to cross-subsidise and fund their other municipal service delivery obligations.

While the problems of some 20 defaulting municipalities out of a total of some 180 has been well publicised, it must certainly be galling to the significant majority of municipal electricity distributors to hear that the failing Eskom wants to bypass them all in order use their surpluses to sort out its own financial problems.

This especially as Eskom’s own performance in distributing electricity direct to domestic and commercial businesses in areas such as Soweto is amongst the very worst of them all, with theft and non-payment amounting to some 83% of electricity supplied direct to the residents and commercial businesses in Soweto by Eskom. Indeed, with no end in sight, Eskom’s own theft and non-payment financial problem in Soweto alone is bigger that its non-payment problem with all 20 defaulting municipalities combined.

Mr. Molefe went on further to suggest that all Eskom customers, large and small, that currently have credit meters, and pay for electricity monthly on a 30-day credit account, should be required to change to prepayment meters. His rationale was that this would quickly resolve Eskom’s cash-flow crisis by bringing forward some two month’s revenue, amounting to about R20-billion, into Eskom’s depleted coffers.

Is it conceivable that Mr. Molefe and his executives are unaware that existing Eskom domestic, commercial, agricultural and industrial customers have to make a prepaid deposit amounting to three month’s electricity usage before opening a 30-day credit account? As such, electricity customers on credit meters effectively prepay even more than customers on prepayment meters, who do not pay this three month deposit.

This means that if all credit customers were to change to prepayment meters as suggested by Mr. Molefe, the three month prepaid deposits for credit customers would presumably have to be refunded, which would mean that Eskom’s cash flow crisis may in fact worsen rather than improve.

Finally, Mr. Molefe appears to have been led to believe that prepayment meters are somehow a panacea for all the revenue protection and collection problems experienced by Eskom Distribution and municipal electricity distributors.

This is strange, because prepayment meters were pioneered by Eskom itself in the early 1990s, and have been around for decades,alongside credit meters. Strange too, because Eskom’s long experience with both prepayment and credit meters shows that there are areas with prepayment meters having good levels of non-technical losses, and other with poor levels. The same applies to areas with credit meters.

Thus it is clear that successful revenue protection and collection not simply a choice of meter technology, but a holistic approach where both prepayment and credit meters, and a whole range of good management, performance monitoring, credit control and enforcement practices form part of the solution.

A number of regulated tariff options, including those involving both prepayment and credit meters, are currently available and approved by NERSA, and it would certainly not be left to Eskom’s whim or discretion to force a credit customer onto a prepayment tariff without good reason, simply to suit Eskom’s financial needs.

After neglecting the theft and non-payment of electricity in Soweto and other problematic areas for decades, there is simply no quick fix as Mr. Molefe seems to believe. The solutions will require a long haul, with commitment and support from national and local government politicians, the cabinet, relevant government departments, NERSA, Eskom, municipalities, the police, courts and correctional services.

  • Rolf Niemand

    Good article. The crux of course is that any reasonably knowledgeable person in this industry knows all of this so who is advising him?

  • CharlieK

    All fine Mr Yelland, with one correction: You’re very lucky to get your credit account deposit refunded by Eskom. I’m now in my 11th month of waiting for my deposit from Eskom Distribution for the premises I vacated in Fourways! Cash strapped or just plain fraud? Prove yourself otherwise Eskom! Account No. 8167388355.

  • Miss Roxy

    what credit refund?? Eskom will use the credit deposit saying that this amount is what it will cost Eskom to install a prepaid meter. Had the same issue with XX municipality; I could go to prepaid, but the deposit would be forfeited to cover installation costs. Problem with Eskom is that they are very ingenious when it comes to rip offs but lack total ingenuity in solving their own pressing crisis.

  • D60377

    Apropos prepayment meters being regarded by some as a panacea for revenue collection : there is also the very significant difficulty that most of the prepayment meters currently installed or available to buy, still use the old STS1 system that has a “purse” maintained in kWh units. You cannot buy credit for these meters in Rands, only in kWh; so at the time that you buy credit, the vending system must make an assumption as to what tariff(s) to use to convert Rands to kWh.
    This worked fine for the flat tariffs (fixed value of c/kWh) for which these systems were designed. However, by government decree, all electricity users must now be charged according to an Inclining Block Tariff (an IBT) – as you use more electricity in a month, the units must get more expensive. These older STS meters have no knowledge of how many units you use in a month, and they cannot dynamically alter the effective tariff as you use more (or less). They do not directly support complex tariffs such as IBT or Time Of Use (TOU). Prepayment users with such meters are being charged according to tariffs that are at best, a guess made by the vending system.
    Yes, there are more complex meters available, but Eskom and the municipal distributors have enough difficulty issuing a correct IBT bill when the exact kWh consumption is known in retrospect. Add to that the complexities of meter-based tariffication, vending in currency, and the problems of communicating new tariff structures to a population of meters, and you have a recipe for a billing disaster on a scale too awful to contemplate.

  • JustAnotherJoe

    And in all this time.. NO ONE has noticed that a new member of the Eskom board is none other than the ‘super-talented’ (NOT!!), super-‘connected’ (read that in any manner you wish), Mark Pamensky the ‘COO’ of Blue Label Telecoms, the majority owner of CigiCell which just happens to sell more than 50% of ALL of Eskom’s Prepaid electricity country wide. If EVER there was a conflict of interest – government sanctioned – this is it.. How come no-one has flagged that as a serious problem?? This smells more and more…

  • Chris, but surely “Degree or not degree. That is the question” Are the Eskom executives properly qualified? 🙂

    • John, just define “properly qualified”. It tends to mean “ANC membership cards properly paid up”. Possibly also, “Elected as a Senior Party Member”.

    • PAT

      NO!!! And this has been the case for 30 years!

  • Chris_Herold

    Perhaps we are skirting around the real problem. The new CEO appears to be as dependent on his advisers as our President was on Schabir Shaik to manage his finances. A technically incompetent CEO is simply the wrong man for the job.

  • How much of an “elephant in the room” is the fact that this morning (6 May), the news bulletins included an account of some Soweto-area residents mounting a protest demonstration against prepaid electricity meters, and demanding a flat-rate tariff of around R100 per month.?