The Midvaal municipality, in southern Gauteng, has issued a pioneering tender through which it is seeking to enter into a long-term concession agreement with a private entity to manage, operate and finance its electricity distribution service and to invest in new technologies.
The municipality issued a request for qualification (RFQ) on June 14 for the proposed Midvaal Electricity Distribution Services Public–Private Partnership (PPP), having completed feasibility studies and on receiving positive views and recommendations from the National Treasury.
The RFQ closes on July 24 and a compulsory virtual briefing has been scheduled for June 26.
The concession study has been supported by the National Treasury’s Government Technical Advisory Centre and Midvaal has also tapped project-preparation funding from the European Union’s €100-million Infrastructure Investment Programme for South Africa, which is administered by the Development Bank of Southern Africa (DBSA).
Speaking during a webinar hosted by the Delegation of the European Union to South Africa, DBSA specialist adviser Elliott Monama indicated that the concession agreement could be for between 15 and 20 years.
The decision to pursue the PPP, he revealed, followed a thorough assessment of changes to the electricity distribution environment. These included a sharp rise in Eskom tariffs, a fall in sales volumes, a rise in electricity theft and network vandalism and grid defection by commercial and industrial customers, as well as affluent households.
As Midvaal’s electricity sales revenue had fallen, Monama explained that it had become increasingly difficult to maintain the quality of its distribution assets and address backlogs that had arisen.
“The question we had to ask ourselves was: can the municipality use its own budget to pay for the refurbishment of its electricity assets upfront, today to address this problem? Can we use the government grant, which is allocated over a three-year rolling period, continuously and resolve the problem that we face today. The answer is yes, you can. However, it would take ten to 20 years to resolve the existing [backlog] in a context where the problem just keeps increasing.”
As a result, the municipality resolved to assess whether there was market appetite for a PPP that could, for a reasonable concession fee, improve the management and operation of the network and make the investments needed to improve its performance and resilience to ongoing market changes.
Midvaal has appointed PwC South Africa as the lead transaction adviser, along with engineers Aurecon and lawyers ENS Africa, which are providing transaction support.
The municipality indicates that its main objective is to realise operational efficiencies, improve electricity distribution revenues, fund infrastructure backlogs and preserve municipal budget support.
Midvaal also believes that lessons arising from the PPP could prove useful for other municipalities and the electricity distribution sector in general, which many regard as the weakest link in an already fragile domestic electricity supply industry.