South Africa

POWER POTENTIAL OP-ED

As SA restructures its electricity supply system, the poor are left behind

The authors argue that South Africa's current electricity distribution model is undermining, rather than contributing to, universal access. (Photo: Dean Hutton/Bloomberg via Getty Images)

South Africa’s current electricity provision system is failing dismally in achieving the goal of universal access to electricity. In reality, the system is undermining rather than contributing to the target, failing to cater for those who need it most. The immediate restructuring of the free basic services from the current discretionary allocation to a conditional grant must be implemented.

 

Investments in electricity access, if they are aligned with medium- and long-term climate and sustainability goals, will yield substantial socio-economic and environmental benefits and should be prioritised in the (post-Covid) recovery strategies currently being developed by governments and international institutions. — Global Commission to End Energy Poverty

Government will promote access to affordable energy services for disadvantaged households, small businesses, small farms and community services. — White Paper on Energy (1998)

While the South African electricity system is in the process of being restructured, a disturbing (and increasing) number of households and small businesses are being left behind. As we demonstrated in a previous Daily Maverick article, research shows that universal access to clean and safe energy — most notably electricity — has significant and widespread socio-economic benefits that extend far beyond an individual household or small enterprise. Access to electricity is critical for the growth of small businesses, employment creation and income growth. For this reason, achieving universal access is a national priority in many countries.

Universal access to electricity is a necessary prerequisite to ending poverty itself

South Africa is committed to implementing the Sustainable Development Goals (SDGs), the 7th of which is “Ensure access to affordable, reliable, sustainable and modern energy for all”. Under that SDG, target 7.1. is “by 2030, ensure universal access to affordable, reliable and modern energy services (electricity)”. In theory, South Africa is also committed to increasing access to affordable energy services in terms of one of the energy policy priorities set out in the 1998 White Paper on Energy.

These commitments, together with the strong linkages between universal access to electricity and poverty reduction and employment creation should mean that the goal of universal access is national priority.

It isn’t.

And this policy gap is severely limiting the country’s development prospects.

As we see it, the main obstacles to achieving universal access to electricity (and all the associated benefits that go with that) are the following:

A failure to grasp that “access” is made up of more than just physical access. Although a connection to the grid is necessary for access, it is far from sufficient. Access comprises three main components, all of which must be in place:

Access = physical connection + affordability of service + quality of service

Notably, affordability is the most significant barrier to access in South Africa: almost half of all households and thousands of small businesses are unable to afford the electricity they require to effect improvements in standards of living, and take advantage of a wide range of employment opportunities. Despite this situation, affordability has never been given the attention it requires. Unless a concerted effort is made to address the affordability barrier, the development potential of South Africa’s extensive electricity distribution grid, and its comparatively high (in the developing world) household electrification rate of 85% will never materialise.

The current electricity distribution model is undermining, rather than contributing to, universal access. It is based on two key components: the user pays (and if they cannot pay they cannot access the service), and a local government fiscal model that prioritises maximising revenue from electricity provision over maximising its development impact. This fiscal model (together with Eskom’s dire financial position after many years of mismanagement and corruption) has contributed to electricity steadily becoming less and less affordable for poor households and small enterprises. But it also means that individual municipalities have very little room to address the affordability challenge (through lower tariffs) without running the risk of an unfunded budget (when a municipality has insufficient revenue to cover its expenditure). Unfunded budgets are not permitted under current municipal financial management legislation.

Only two notable policy responses to the imperative of affordability in achieving universal access to electricity have materialised, and neither has been a success. The first is the principle of cross-subsidisation in tariff setting, whereby some users pay more so that others pay lower tariffs than they might otherwise. Although this is a reasonable theory (wealthier users pay more so that other users pay less), the reality is that even the most heavily cross-subsidised electricity tariffs are still way beyond the affordability threshold of the majority of South African households.

The second policy response is the free basic electricity (FBE), which has had a negligible impact:

  1. The amount of FBE (50kWh per qualifying household per month) represents only a fraction of the amount required to leverage meaningful socio-economic benefits. Most of the research on the subject suggests that 200kWh per month is the minimum amount required by an average-sized household to generate poverty reduction and employment benefits.
  2. Even this tiny benefit has failed to reach most of the intended beneficiaries: after allowing for households that do not have an electricity connection, our calculations suggest that there are millions of households that should be receiving FBE, but are not. We are now in the 28th year of democratic South Africa and the 26th year of our Constitution that guarantees each person the right to dignity. Yet only 20% of the more than 10 million households for whom money has been allocated for free electricity actually receive any benefit. This represents R6.2-billion a year in benefits funded in the national budget that are not being passed on to the households that need it the most.
  3. The FBE is part of a comprehensive package of free basic services — electricity, water, sanitation and waste removal. Millions of households are not receiving any of these benefits, due to poor implementation by many municipalities and a lack of oversight by national government.

South Africa is failing dismally in achieving the goal of universal access to electricity, and is continuing to punish the poor for their poverty. In addition, we are missing a significant development opportunity by failing to  facilitate access for small enterprises and home-based employment opportunities. This situation must be addressed as a matter of national urgency.

What needs to be done?

  1. The implementation and oversight of the FBE policy (and all the free basic services) must be changed as a matter of urgency, since it clearly is failing to deliver. Under the current arrangement, these free services benefits — a critical part of national development strategy — are delivered (or not delivered as is more often the case) entirely at the discretion of individual municipalities. We believe that the immediate restructuring of the free basic services, from the current discretionary allocation to a conditional grant, is the best option. This will ensure that (across all the services) at least R30-billion worth of additional benefits will go to the poorest households, with almost immediate effect. This funding is already included in the national budget; this change will simply mean that it is used for the intended purpose.
  2. The entire model of provision of electricity in South Africa needs to be fundamentally overhauled so that it is firmly focused on delivering genuine universal access. A broad spectrum of civil society and community groups must be included in the development of a new model, to prevent the errors of the past.

In summary, the current electricity provision system — with its user-pays orientation — is never going to deliver what is required to make a meaningful impact on poverty, employment and standards of living, because it so effectively excludes so many. In fact, it’s doing a very good job of achieving exactly the opposite. DM

EG-SA Working Group on Provision of Electricity

The EG-SA (Energy Governance South Africa) working group on provision of electricity is a sub-group of the EG-SA network – a network of civil society organisations and individuals dedicated to promoting transparent, inclusive, and accountable decision-making in the energy sector. The working group currently includes the following organisations and individuals

Gallery

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All Comments 2

  • What we really need in energy is that when you make above a certain percentage profit you get taxed significantly more than if made below that percentage. Then if want more money you have to supply more people. They could apply principle globally …,,,, in the same way they price globally

  • Tariffs are unaffordable due to the massive tariff hikes due to all the incompetent management and looting by unqualified and inexperienced cadres appointed post 1994 in all sectors of government. It cannot improve until honest, competent managers are appointed to trim bloated staff complements and run effective and efficient organisations.

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