International players interested in Midvaal electricity outsourcing

About 100 interested parties expected at bidders’ conference.

Midvaal Local Municipality, the only one in Gauteng to get a clean audit report from the Auditor-General in the latest round of audit outcomes, has started the process of outsourcing its electricity function for a period of 20 years in the form of a public-private partnership (PPP).

The request for pre-qualification (RFQ) closes on 13 December, according to information on the municipality’s website.

ADVERTISEMENT CONTINUE READING BELOW

Read:
SA’s top-run municipalities are Midvaal and Saldanha Bay [May 2023]
A look inside SA’s best-run municipality [Sep 2024]

The successful bidder will be expected to finance, design, manage, operate, maintain and expand the municipality’s distribution network and provide electricity distribution services currently provided by the municipality.

It will do the bulk purchases, which may include renewable energy from independent power producers and coordinate with the municipality’s other functions and staff, the invitation to bidders states.

The municipality will retain the non-revenue electricity services such as street lighting, and will man the control room. It will also be responsible for drafting tariff applications to be submitted to energy regulator Nersa.

Logical move

This comes as the South African Association of Independent Power Producers (Saippa) called for the appointment of private companies to assist struggling municipalities with their electricity functions.

Read: The South African towns where electricity supply is privatised Struggling municipalities must outsource power distribution – Saippa

Municipalities at the end of September owed Eskom R90 billion in arrear debt for bulk purchases.

Eskom on 7 November served a notice on the City of Joburg (CoJ) that it would embark on a programme of supply interruptions because the city owes it almost R5 billion in arrear debt and failed to pay its current bill of R1.4 billion.

After intervention by Electricity and Energy Minister Kgosientsho Ramokgopa the CoJ agreed to pay the current account, which would prompt Eskom to withdraw the notice. It is not clear whether this payment has been made yet.

Read:
Delinquent municipalities owe Eskom R82.3bn
CoJ faces potential power cuts over unpaid Eskom debt

CoJ electricity utility City Power has been plagued with infrastructure failures that frequently leave residents in the dark for extended periods. Many municipalities have similar problems due to ageing infrastructure and a lack of funds to upgrade it.

Efficiencies

Reginald Hubbard, Midvaal member of the mayoral committee for engineering services, told Moneyweb the municipality’s ageing infrastructure was one of the factors considered when the decision was made to get a private partner.

The long-term contract and associated revenue stream will support the business case for upfront capital funding to deal with the maintenance backlog on the network, which the successful bidder will then manage and maintain.

“Electricity is our biggest revenue item,” says Hubbard. The municipality hopes that the private sector partner will bring with it efficiencies and improved revenue.

“The municipality will back it up with grants it gets from government,” he adds.

Midvaal will remain the holder of the distribution licence, with the successful bidder as its agent.

ADVERTISEMENT: CONTINUE READING BELOW

The company will be required to take over all the staff in the municipality’s electricity department for at least three years.

The exact terms of the contract have not yet been finalised, but the municipality will most probably get a percentage of the electricity revenue, Hubbard says.

Interested parties

About 30 interested parties attended a recent internal bidders’ conference and about 100 are expected at a bidders’ conference that will be held in conjunction with the Development Bank of Southern Africa (DBSA), which Midvaal is working with on the project.

According to Hubbard this includes companies from the US and China.

Tommy Garner, executive committee member of Saippa, earlier said if the opportunities are there, a market of service providers in the distribution management field will develop quickly, as was the case with independent power producers at generation level.

“The economic signal must be there. Municipalities must be pragmatic and allow private companies to bring their expertise, rather than cling to legacy roles.”

The companies that are successful in the Midvaal pre-qualification round will be announced on 7 February.

Hubbard says Midvaal will be the first municipality in the country to enter into a PPP with regard to its electricity function.

The municipality expects to be able to offer its residents tariffs that are lower than those of other municipalities through the inclusion of IPPs in its energy mix.

Rural Maintenance – the company contracted to manage the electricity function of the Mafube municipality in the Free State, although not through a PPP – has been successful in keeping electricity tariffs in that municipality about 10% below the Nersa guidelines and benchmarks in nine out of the 13 years it has been in charge.

Chris Bosch, CEO of Rural Maintenance, says even a large metro like Johannesburg should consider appointing private companies with the necessary expertise to manage its electricity function.

“Divide the City Power distribution area into about 10 sections and appoint one service provider in each section.”

He says that will be manageable and the competition among such service providers will ensure efficiency.

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.