Capital budgeting in electricity distribution industry in Eskom moving into regional distributors

Abstract

South Africa is at the cross roads as far as the electricity infrastructure is concerned. It has an ageing electrical network with the demand for electrical power almost exceeding the country's producing capacity. Some serious investment decisions will have to be made as far as network expansion, maintenance, and refurbishment of the existing infrastructure. The government being a major stakeholder in the supply of electricity due to its commitment to the inhabitants of South Africa has sought to harmonise the electricity distribution industry by proposing to ring fence the industry. Through t he Electricity Distribution Industry (EDI), the government has proposed to reduce the number of electricity distributors from almost four hundred to six regional electricity distributors (REDS). The Electricity Distribution Industry has five main objectives as set out by the government and these are: • to provide low cost electricity to all consumers, with equitable tariffs for each customer segment; • to provide a reliable and high quality supply and service to all customers, in support of the government's economic and social development plans; • To meet the country's electrification targets in the most cost-effective manner, and to ensure that electrification is contributing to social and economic development. • To meet legitimate employment, economic and social interests of all employees in the sector and to ensure their safety; and • To operate in a financially sound and efficient manner, in order to provide a reliable and sustainable future for both consumers and employees. In order for the EDI to fulfil its mandate the REDS will have to be managed in a financially sound and sustainable manner. Eskom being the largest of the distributors with a significantly larger asset base will have to invest significant amounts of money in infrastructure going into the REDS.