HomeRegional NewsSouthern AfricaConstitutional change may be on the cards to encourage REDs formation

Constitutional change may be on the cards to encourage REDs formation

15 July 2008 – The government is considering an amendment to the Constitution, which will force the participation of municipalities in the regional electricity distributors (REDs). This will be done in conjunction with a scheme to compensate local authorities for the loss of revenue as a result of transferring electricity distribution functions to the REDs said minerals and energy deputy director-general Nelisiwe Magubane.

Revised restructuring approach showing the six metro REDs and the national RED(s).In the current Constitution, energy reticulation is a municipal competence, but as this is a lucrative source of revenue, municipalities are loath to voluntarily hand over this income source.

Up to 30% of a municipalities income is derived from electricity reticulation and any ‘profit’ is often used to cross subsidise other municipal services. However, as the participation of municipalities in the REDs is currently voluntary, many have resisted inclusion.

According to Magubane, the justice and constitutional development department would have to decide on whether constitutional amendments could and should be made to make participation in the REDs compulsory for municipalities.

Magubane said municipalities agreed with REDs in principle, but "when it gets down to the details, then the problems start".

"We are working on a deal to provide municipalities and Eskom with compensation for loss of revenue.

"We should have this in place by September," she said.

The delay in the formation of the REDs has resulted in low levels of investment in distribution infrastructure by municipalities and resulted in uncertainty amongst staff.

Said Magubane, "the delay has created a perpetual uncertainty, particularly for human resources. Unless you know what the final aim of any organisation is you are never going to feel comfortable. Because of the uncertainty some trade unions are beginning to resist the idea."