050910 Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

Johannesburg - South Africa needs to spend R35 billion to maintain neglected distribution networks, or risk further backlogs, the Free Market Foundation warned on Tuesday.

“We're in a serious situation,” the lobby group's spokesman Eustace Davie told reporters in Johannesburg.

Electricity was used by local governments to cross-subsidise other goods, he explained. In addition, a decade-long attempt to restructure distribution meant municipalities had no incentive to invest in electricity infrastructure when they might not benefit.

As a result, spending on the grid itself had been neglected. Davie recommended municipalities should either contract out the maintenance, or sell off the grid.

Doug Kuni, MD of the Independent Power Producers' Association, said economic growth depended on growing the electricity supply. Currently, some 5000MW was lacking in the economy.

“You cannot grow your economy without new electricity,” he emphasised.

Eskom's strategy of buying back power from large energy users was keeping the lights on, but at the cost of economic growth.

Blackouts in 2007 and 2008 had cost the economy between R50

billion and R119 billion, he said.

But independent power producers could not distribute power directly to consumers without Eskom, which owned the grid.

The solution was to establish an independent grid, either under government control or at least partially privatised.

Consumers would benefit, as producers could compete to deliver energy at the lowest price, Davie said. - Sapa