Without accurate registers of assets, municipalities will be unable to stake their rightful claim to the true value of their assets when they relinquish their distribution roles following the launch of SA`s regional electricity distribution system.
The merger of Eskom`s seven distribution networks with the 187 licensed municipalities will see the launch of the first of the six regional electricity distributors (Reds) in June. The restructuring of SA`s R25 billion power industry is aimed at providing a structured, well-regulated sector that will ensure uninterrupted electricity supply across the country at affordable prices and on an equitable basis. This will eliminate more than 2 000 different tariff structures that exist between the licensed municipal distributors and Eskom.
The consolidation of the electricity distribution industry is intended to improve inefficiencies such as the current fragmented nature of the industry, inadequate maintenance networks, significant disparities in tariffs and limited opportunity to introduce competition. It is also expected to accelerate government`s electrification project for rural areas. It is anticipated that a Red will be a financially viable distributor, improving the reliability of supply and access to electricity for all.
The second Red is to be implemented by the last quarter of this year, with the remaining four thereafter rolled out simultaneously.
The process is being facilitated by Electricity Distribution Industry (EDI) Holdings, which was established by Cabinet in July 2003 and mandated to amalgamate Eskom Distribution and the distribution departments of 187 municipalities into six independent companies, the Reds.
EDI has stipulated that current distributors will share in the profits earned through levies and dividend income in proportion to the assets contributed by the regional business units. The company is encouraging municipalities to voluntarily hand over their distribution assets as soon as possible to get the project under way.
Without accurate asset registers in place, municipalities will not be able to prove the real value of their assets. Each municipality should construct a comprehensive asset register listing all assets per asset type. The age and condition of each asset should also be recorded for depreciation purposes. Assets should be uniquely identified through electronic tagging, using barcodes or radio frequency identification (RFID) technology, and GPS co-ordinates should be logged where appropriate.
Conducting such an audit would bring municipalities in line with the GAMAP (Generally Accepted Municipal Accounting Practices) legislation passed in 2004 requiring that accurate asset registers of municipal assets be kept for asset management purposes.
Without accurate asset registers in place, municipalities will not be able to prove the real value of their assets.
Adriaan Scheeres, CEO, Pragma Holdings
GAMAP, a global best practice accounting standard based on Generally Accepted Accounting Principles (GAAP), prescribes a standard to which municipalities must adhere in disclosing financial statements. Principle 113 of the practices specifically states that municipalities must distinguish between capital expenditure on assets and the repair and maintenance of assets. The capitalisation of maintenance expenses will no longer be permitted, and the procurement of assets will be conducted using a cash-based asset register.
Similarly the Public Finance Management Act, which calls for the efficient and effective management of revenue, expenditure, assets and liabilities, prescribes much more than merely the compilation of an asset register. Chapter 10 of the Act states that the requirements of asset management include financial information on asset acquisition and disposal. Financial information should include records on all maintenance work conducted on the asset. This means the Act spans the complete lifecycle of the asset, from acquisition through operation to disposal.
Proper execution of an asset register builds a complete asset history which acts as a central hub from which are managed reliable financial planning, timely preventative maintenance and maximisation of asset performance in relation to asset lifecycle.
Quality control, cost comparisons between products and crucial information for warranty claim purposes are additional advantages of an asset register. Remote data logging and simultaneous condition assessments also provide invaluable information for the accurate calculation of asset depreciation.
Asset identification and verification (AiV) services have been identified as a growing opportunity in SA, following recently imposed legislation requiring the tighter control of municipal assets.
The implications of non-compliance with legislation, together with the financial incentives involved in governing the provision of electricity through service level agreements as encouraged by EDI, provide a strong incentive for municipalities to implement an AiV solution without delay. There is no long-term benefit to be gained by postponing the formalisation of asset registers.
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