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UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo

UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo Energy Programmes and Projects 01 November 2013. Introduction. Electricity Distribution Industry overview Electricity Distribution Industry challenges Current state of EDI

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UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo

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  1. UPDATE ON THE PILOT APPROACH TO DISTRIBUTION ASSET MANAGEMENT (ADAM) Mr. Goodman Nxumalo Energy Programmes and Projects 01 November 2013

  2. Introduction Electricity Distribution Industry overview Electricity Distribution Industry challenges Current state of EDI Approach To Addressing the Challenges Conditionality framework ADAM Programme Implementation Model Progress to date Way forward Allocations Mini - ADAM Projects PRESENT EDI TO PCE 2013-NOV

  3. Electricity Distribution Industry (EDI) restructuring overview Over the last 20 years different attempts have been initiated to improve/restructure the EDI in order to address the various short comings. In May 2001 the Cabinet approved the restructuring of the industry and established Electricity Distribution Industry Holdings (EDIH) to manage the process. After years of attempting to find a workable model within the existing legislative environment, consultations with the various stakeholders, taking into account the energy security, legal implications, impact on local government and Eskom and existing regulations, it became evident that the restructuring process had to be reviewed. PRESENT EDI TO PCE 2013-NOV

  4. Electricity Distribution Industry (EDI) restructuring overview (cont.) The decision made by Cabinet (8th December 2010) was that EDIH would be wound up by the end of March 2011 and not to implement the REDs model. In November 2012 Cabinet approved the ADAM Programme and the start of the first phase This presentation is only focusing on the mini-ADAM pilot phase. There is also a more long term policy process undertaken by DOE for the full implementation of the ADAM programme (EDI policy development in Policy and Planning Branch) . PRESENT EDI TO PCE 2013-NOV

  5. Current State of EDI Unacceptable wide range of tariff differences Significantly different service standards and practices Lack of appropriate investment in the electricity distribution network assets Challenges pertaining to technical/non technical losses and revenue management Decrease in quality and reliability of electricity distribution to the end customer Inadequate skills development for the industry PRESENT EDI TO PCE 2013-NOV

  6. Having done field visits to all 12 priority cities, the following observations were made: • Asset management strategies/plans and appropriate systems do not exist across the industry, • Municipalities and Eskom are not providing for sufficient investment in existing and planned distribution networks leading to a backlog in infrastructure upkeep. • The average age of the networks is in excess of 40 years. • Demand growth exceeds the loading capacity of the networks, which will amongst others pose a significant risk to the effective introduction of Energy Efficiency Strategies. Current State of EDI: Phase 1 Initial Assessment PRESENT EDI TO PCE 2013-NOV

  7. While the industry suffers from a lack of reliable data and appropriate measurement, all indications are that network reliability is decreasing, which is evident in the increase in the number of outages due to poor performing networks and incidents related to electric cable and associated equipment theft. • The regulatory environment is not conducive to enforcing license conditions of distributors. Current State of EDI: Phase 1 Initial Assessment (cont.) PRESENT EDI TO PCE 2013-NOV

  8. Approach To Addressing the Challenges It is important to address the challenges in a holistic and integrated manner The Approach to Distribution Asset Management (ADAM) Turnaround Programme is a comprehensive, multi-year initiative targeted at addressing maintenance, refurbishment and strengthening shortcomings in key electricity distribution infrastructure. Current practices in the EDI do not guarantee business sustainability and socioeconomic growth, while the associated increased operation of under-maintained plant is posing a significant risk to the industry. The maintenance backlog has been attributed to inadequate investment in infrastructure that puts the country at risk of deepening the electricity crisis. PRESENT EDI TO PCE 2013-NOV

  9. The NERSA Reports on the state of EDI infrastructure show that even though there are pockets of good performance as far as maintenance, reliability, control and networks go, a significant number of assets needs improvement. Approach To Asset Management PRESENT EDI TO PCE 2013-NOV

  10. Approach To Asset Management Through a study conducted by EDIH during 2008 it was revealed that the estimated maintenance, refurbishment and strengthening backlog in the distribution network amounted to R27,4bn (2008 values). A holistic approach to asset management in the EDI is required to run parallel to the current work been done in the EDI. PRESENT EDI TO PCE 2013-NOV

  11. Approach To Asset Management A business plan for addressing the backlog is already developed. The current capital expenditure in the EDI is approximately R5 billion per annum and there are resource constraints which would make it difficult, if not impossible, to implement the business plan in a short period of time. The backlog figure is not static and the longer it takes to address it, the larger the backlog will become and more importantly the need for funding and competent human resources to address this issue will increase. DOE is in the process of appointing consultants to carry out an update on the EDI backlog analysis. PRESENT EDI TO PCE 2013-NOV

  12. Approach To Asset Management PRESENT EDI TO PCE 2013-NOV

  13. Resourcing: Funding Requirements Summary • It is essential that funding be sourced to move the ADAM programme beyond the first completed phase. • A phased funding required as indicated above, is required to initiate the ADAM programme. PRESENT EDI TO PCE 2013-NOV

  14. For Mini ADAM programme – • Assist municipalities with technical identification of most critical challenges • Development of Business plans • Engaging with consultants/contactors on work to be done • Monitoring of progress on a continuous basis. R320 million available from MYPD2: (Transferred to DOE) • Implement as a pilot Mini ADAM programme wrt critical municipalities to test the broader ADAM principles. • Going forward tariff based • Part of allowance approved by NERSA • Ring fencing of tariff allocation for the purpose it is been allocated • Co-funding by municipality through soft loans Funding options PRESENT EDI TO PCE 2013-NOV

  15. Each municipality participating would be expected to agree to:1.Contract signed between DOE and each qualifying municipality 2. Ring-fencing account of approved funding, 3. Submit rehabilitation plan for approval, 4. Report progress as prescribed Conditionality framework for mini-ADAM PRESENT EDI TO PCE 2013-NOV

  16. ADAM Programme Implementation Model Cabinet approval N.T.Mini ADAM Allocation R320m (ex EDIH surplus ) DoE M.O.A (DOE-MUNIC) Funding Level Payment Cash flow transfer Report- Annexure ‘D’ Recommend Approval to DoE Metro/Municipality Ring-fenced accounts Each Metro/Munic Project Manager Programme Steering Committee(MASC): Munics, NERSA, DoE, MISA, N.T, DBSA, Eskom Present Projects Technical Monitoring Progress Reporting Claim Payment Monitoring DoE Team Project Level Execution Project 1 Project 2 Project n Operations and Maintenance - Metro/Munic PRESENT EDI TO PCE 2013-NOV

  17. Mini–ADAMProgress to date National Treasury re-allocated R320 million of the funds not been utilized by EDI Holdings to DoE to initiate the “Mini ADAM’ project.In order to kick start the process of implementing the ADAM Programme a “Mini” ADAM programme has been planned. The 2013/14 allocations for the “Mini ADAM” of R320 million was allocated to 7 municipalities and 2 Metros as critical emergency interventions is part of implementation of the overall ADAM strategy.Note: Due to the limited funding, only municipalities who required critical emergency interventions and responded in time (to fit in with National Treasury’s timelines) with enough information as required by DOE were considered.No further funding has been allocated in the next financial years for the Mini ADAM programme. In order to ensure that the “Mini ADAM” projects are conducted in a holistic manner, a broad base Steering committee was established. PRESENT EDI TO PCE 2013-NOV

  18. Steering Committee The Key Role of the Mini ADAM Steering Committee (MASC) is to oversee the progress of the programme and ensure it is carried out satisfactorily.The MASC is comprised of:• Representatives (senior managers) of NERSA, MISA, DOE, DBSA ,N.T., ESKOM)• Any specialists, consultants or advisors may be called upon at any time if required.1. Considers and recommends approval of the business plans and achievement of outcomes.2. Ensures the project's scope aligns with the requirements of the stakeholder groups.3. Provides those directly involved in the project with guidance on project business issues. 4. Ensures effort and expenditure are appropriate to stakeholder expectations.5. Addresses any issue that have major implications for the projects.6. Keeps the project scope under control as emergent issues force changes to be considered.7. Reports on project progress to those responsible at a high level. PRESENT EDI TO PCE 2013-NOV

  19. Mini ADAM Allocations PRESENT EDI TO PCE 2013-NOV

  20. Mini ADAM Projects PRESENT EDI TO PCE 2013-NOV

  21. Mini ADAM Projects PRESENT EDI TO PCE 2013-NOV

  22. Mini ADAM Projects PRESENT EDI TO PCE 2013-NOV

  23. Way Forward 1. It is imperative that the reform momentum created through the mini-ADAM Program be maintained.2. Focus to be directed towards the regulatory challenges afflicting municipalities, including network rehabilitation, setting norms and standards for maintenance, monitoring compliance and enforcement.3. Ring fencing of tariff allocation and the monitoring of these allocations to ensure it is applied in for the purpose it was attended for. 4. Cooperation from all stakeholders and specially from Local Government who are responsible for service delivery must be forthcoming so thatthe program is successful. 5. Have to finalize long term solution of EDI challenges. PRESENT EDI TO PCE 2013-NOV

  24. THANK YOU PRESENT EDI TO PCE 2013-NOV

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