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Service Delivery Service Delivery

FrameworkFramework

Update for Portfolio Committee

of Public EnterprisesBy Jacob Maroga

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Contents

– Background stats on Distribution• Customer profile• Debt Statistics

– History of Takeover debt• Bulk Debt• Individual Debt

– SDF• Background• Objectives• Principles• Progress feedback

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THE MAP OF ESKOM REGIONS

Western

Southern

North-Western

Eastern

North-Eastern

Central

NorthernDistributionRegions

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Total number of Customers

West South N/ East North Central N/West East Total

PRE PAID 170,014 426,292 407,475 589,248 316,347 392,080 398,352 2,699,808

SPU 71,790 26,125 57,428 74,443 207,532 50,200 66,706 554,224

LPU 2,236 954 2,684 1,567 1,910 2,402 1,432 13,185

TOTAL 244,040 453,371 467,587 665,258 525,789 444,682 466,490 3,267,217

LPU- Large Power Users

SPU- Small Power Users

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The History of Customer Numbers

• Historically Eskom was mainly a bulk supplier

• Residential customers grew from 140k in 1991 to 3,3m in 2003

• Areas of growth– Take-overs of former Black Local

Authorities– Take-overs of former Homelands– Electrification programme

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Sales and Revenue by category

Sales and Revenue for 2002Sales(GWh) Revenue(Rm) %

Municipalities 74,636 10,510 38%Industrial 51,380 6,634 24%Mining 32,549 4,604 17%Traction 3,258 559 2%Residential(Con) 4,883 1,527 6%Residential(PPD) 3,005 1,108 4%Commercial 6,483 1,265 5%Agricultural 4,009 1,060 4%International Sales 228 33 0%

Total 180,431 27,300

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Total Debt (R’m)

SPU 1 975 ( 185) 2 048 ( 173) 2 300 ( 131)

LPU 2 986 (2 127) 2 376 (1 944) 2 034 (1 818)

TOTAL 4 961 (2 312) 4 424 (2 117) 4 334 (1 949)

() = current months bill

2000 2001 2002

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LPU over 90 days (R’m)

2000 2001 2002*

Regions 80 76 76

Take-overs 256 0 0

Suspence 296 257 14

TOTAL 632 333 90

* Terminated debt included R70m

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LPU over 90 days per Region (R’m)

2000 2001 2002

Central 27 24 20

Western 1 1 1

Southern 1 1 1

North Western 4 5 5

North Eastern 34 25 26

Northern 8 10 9

Eastern 5 10 14

TOTAL 80 76 76

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SPU Debtors over 90 days per Region (R’m)

2000 2001 2002Central 1 072 1 357 1 730Western 14 15 14Southern 12 9 7North Western 29 27 16North Eastern 84 103 55Northern 122 156 159Eastern 33 39 25TOTAL 1 366 1 706 2 006

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SPU Debtors over 90 days (R’m)

2000 2001 2002*

Regions 682 860 946

Soweto 684 846 1 060

Suspence 242 0 0

TOTAL 1 608 1 706 2 006

SDF Customers included R1.4(b)

Terminated debt included R573(m)

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Local Authority Debt (R’m) over 30 days and R10 000

2000 2001 2002*

Normal 44 20 27

Take-overs 256 0 0

Suspence accounts 296 257 14

TOTAL 596 277 41

Notes

Normal 2002 - Nongoma 12

- Cullinan 8

- Other (20) 7

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Suspence 2002 - Ogies 14

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History of Problems with BLA’s

• Financial collapse of former Black Local Authorities( BLA’s) in late 80’s

• Bulk debt problems• Two processes unfolded to solve

BLA debt problems– Eskom take-overs of customers

and assets – Bulk debt agreements with newly

formed TLC’s

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Bulk Debt Agreements with Municipalities

• In the early 90’s Municipalities owed Eskom close to R800m

• Bulk of debt was due to BLA take over• Former ‘White’ Municipalities were

reluctant to take over former BLA’s as a result hereof

• This created a problem with the formation of TLC’s

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Bulk Debt Agreements with Municipalities

• A process chaired by the then Transvaal Provincial Administration was embarked on to find a solution

• The process included various stakeholders

• In 1995 an agreement was reached with Eskom to write back some of the debt in such a way that the culture of payment was restored.

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Bulk Debt Agreements with Municipalities

• The parties agreed that:– 30th June 1995 be used as a cut

off point for the Municipal debt– All amounts owed to Eskom

before this date be put in suspense account 1 and accrue no interest

– All debt accumulated from 01 July 1995 up to the date when the Bulk Debt Agreement was signed be put into suspense 2 account and accrue interest

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Bulk Debt Agreements with Municipalities

– The current account and suspense 2 accounts be paid on due date without fail

– On settlement of the suspense 2 account, suspense 1 would be written back

– Should the municipality default on its current account, both suspense1 & 2 become due and payable

– The choice to take advantage of this arrangement depended on the individual municipality.

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Bulk Debt Agreements with Municipalities

BULK DEBT AGREEMENTS

(REGION) LOCAL AUTHORITYSUSPENSE A/C NO.

1SUSPENSE A/C NO.

2SUSPENSE A/C

NO. 3LAST DATE OF PAYMENT

Breyten TLC R 2,652,399.22 2,099,546.45 September 1, 2000Clocolan Transitional Council R 10,434.08 August 1, 1998

Cullinan (Refilwe) 6,117,342.27R 886,850.26R December 1, 2001Ermelo R 13,729,698.28 December 31, 2001Greater JHB Metropolitan Council R 64,240,892.74 October 1, 1997Heidelberg TC 13,507,804.80R December 15, 1999Highveld Ridge TLC 24,250,513.31R * R6,308,812.81 January 1, 1999North East Rand Metropolitan Council [Khayalami Metro] 248,585,470.55R 54,789,588.77R May 1, 2002Ogies TLC 4,749,290.30R 15,744,567.01R January 1, 1998Potchefstroom TLC R 23,092,732.56 **R3,729,698.28 December 1, 1999Sasolburg TLC 27,618,789.74R April 24, 2000Springs City Council 152,007,682.32R 26,150,597.05R June 1, 2002Witbank R 21,124,015.72 May 31, 1998TOTAL 599,034,666.67R R 96,684,752.83 R 886,850.26

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Results of Bulk Debt Agreements

• BDA’s have performed very well• Debt owed by municipalities have

been normalised• There are still a few municipalities

which are being monitored closely• The risk on bulk debt is currently

manageable• Municipalities, Eskom and

communities have benefited from this.

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Take-over of for BLA Customers

• The failure of BLA to manage supply and pay bulk debt

• Assets and customers taken over by agreement with communities

• Debt of BLA’s written -off against assets• Projects initiated to normalise

infrastructure and service delivery• Limited success wrt to payment levels• Billing, account management and meter

reading also not efficient after take-overs.

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Challenges with take over areas

• Account management processes– Accuracy of bills– Frequency of meter readings– Integrity of metering equipment– High level of account estimations– Data integrity

• Quality of Supply– Need for refurbishment and upgrade of

major installations– High level of equipment theft and

vandalism– Illegal connections

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Challenges with take over areas

• Pre take-over issues– Low tariffs viz Eskom’s– Flat rate– Ineffective debt management

• Social issues– Affordability– Lack of respect of service infrastructure– Tolerance of vandalism– Pressure groups taking advantage of the

situation– Other services competing for same

income

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Soweto Payment levels - %

0

20

40

60

80

% 66 52 61 52 61 36 26

1997 1998 1999 2000 2001 2002 2003

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Soweto payment levels Jan 01 – Dec 01

50% 50%

70%

80%

84%

59%

56%

71%

53%

50%

47%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

January March May July September November

Month

Per

cen

tag

e

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Payment Levels

Revenue Bad Debt Payment LevelR'b R'm %

2000 23.5 247 98.9

2001 24.5 233 99.0

2002 27.3 278 99.0

2003 (Proj) 29.8 288 99.0

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Background of SDF

• Increasing debt in Central Region to R1.4b• Implementation of stricter credit management

practices• Increase tensions between Eskom and

communities• Customer complaints about service delivery

issues• Need for a consultative approach

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Background to SDF• The formation of the SDF was preceded by a various

discussions with wide range stakeholders in the Central Region through:

– mass meetings– briefings of various committees of both Local

and Provincial government– roadshows involving the DPE Minister– customer forums– meetings with community leaders and

organisations

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Background (cont..)

• SDF endorsed on 30 November 2001• Minister J Radebe sponsored the SDF• Stakeholders represented on the SDF:

– SANCO– Human Rights Commission– City of Johannesburg Council– City Power– DPE– DPLG– Gauteng Provincial Government– Sedibeng Council– Tshwane Metro– Various residents associations

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SDF - Building Blocks

The six categories of focus within the Service Delivery Framework are:

Infrastructure• Provide electricity• Build capacity• Normalise

Service• Provide electricity• Build capacity• Normalise• Provide safe environment

Outstanding Debt• Address outstanding debt

Illegal Practices• Stop illegal practices

Affordability• Settle current accounts• Implement 50 kWh free basic

electricity

Governance• Strengthen governance structures• Strengthen community/customer

interfaces

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SDF Objectives

The objectives of the SDF are to:

• Develop a joint undertaking between Eskom, Stakeholders

and Customers

• Develop a community-centric solution

• Address service delivery issues, problems and barriers

• See solution as a journey instead of a single event

• Start with Central Region for later application in similar areas

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Principles of SDF:• Specified debt part of SDF

• Normalisation of operational and social issues

• SDF accountability of all stakeholders

• Payment of current account first priority

• Normal credit management part of SDF

• Addressing of illegal practices

• Joint communication interventions by all stakeholders

Review of the SDF:

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Business Operations Prog.• 120 000 customers pledged support to SDF

• 63 000 faulty meters replaced

• Estimations reduced from 58% to 20% since Oct ’02

• Extensive communication on various issues

• Extensive internal awareness

All in all Investment made = R62m

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Additional Projects 2003

Project Status Value R’m

Soweto Substations upgrade

Ongoing from 2002 53.4

Meadow 132/11kV new sub

To complete in 2004 19

Soweto Cables upgrade Ongoing from 2003 94.53

Soweto reticulation upgrade

Ongoing from 2003 19.5

Total 186.43

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Key SDF Developments

• Implementation of Debt Relief decision

• Payment plan for outstanding debt

• Resumption of Credit Management

• Conversion to Prepayment Meters

• Update on Free Basic Electricity

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Debt Relief• Eskom Council approval for write-off of debt incurred

before 31 September 2001 in the SDF arrears in Central Region based on

– high level of disputed accounts in the Region

– history of the take-over areas in Central

– facilitate effective credit management

• Announcement on 30 April 2003

• The process will take appr. 3 months to implement

• The debt to be written off is R1.391b

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Payment Plan• All debt incurred from 1 May 2002 is all due and

payable

• A 20 month payment plan for outstanding debt will be offered to customers

• Customers will be expected to pay current account and a portion on the payment plan.

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Resumption of Credit Management

• Suspension of Credit Management in Central Region is now lifted

• Full payment of current account is expected from customers for April 2003

• Credit Management processes will apply for default on current account plus payment plan

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Conversion to prepayment

• 63 000 customers have been converted to prepayment

• Initial reports shows a positive reception of prepayment

• A formal assessment report is being finalised

• More prepaid conversions will be made available to customers based on the results of the report.

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Free Basic Electricity• Pilots completed in 13 areas on behalf of DME

• The FBE framework is being finalised by DME and DPLG

• A self targeted approach will be followed

• 50kWh will be offered to customers who apply

• A 10 amp limited supply will be applied to applying customers

• Planned phased roll-out from 1 July 2003

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In Conclusion

• The debt problems are associated with the history of take-overs

• Each take-over has its unique challenges• The SDF currently focuses on Central

Region• Some of the lessons learned may be

applied to other areas• The normalisation of Service Delivery is a

country challenge• We believe we are on the correct path.

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Thank you !!!