Eskom gets tough with errant municipalities, grabs cash and land

A canola crop near Harden, New South Wales, 15 September 2020 (issued 22 September 2020). Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) predicts canola production will rise by to 3.4 million tonnes for the 2020-2021 winter production, an increase of 47 percent on the 2019-2020 year and a 4 percent increase on the 10-year average. Picture: EPA-EFE/MICK TSIKAS AUSTRALIA AND NEW ZEALAND OUT

As of 31 July, municipalities owed Eskom R31 billion, with 80% of this owed by just 20 municipalities.

Eskom recently attached 139 farms worth R2.5 billion from Matjhabeng municipality in the Free State, signalling a new front in the war with delinquent municipalities.

The electricity utility has been known to attach cars, computers and bank accounts in settlement of municipal arrears, but attaching farms as security for debts owed is something new.

As of 31 July, municipalities owed Eskom R31 billion, with 80% of this owed by just 20 municipalities.

Asked what prompted the attachment of these farms, Eskom replied: “To collect this debt, Eskom is implementing the contractual conditions as per the supply agreement such as interrupting supply, pursuing legal avenues consistent with good credit management processes.

“So far, these 139 farms are the only property of this nature that Eskom is holding as security to cover unpaid debt.”

Farms valued at an average of R18m each

The farms were attached as security for Matjhabeng municipality’s R3.4 billion debt. The municipality values the farms at R2.5 billion, or R18 million each on average (bear in mind this is gold mining country, and includes the town of Welkom).

That should raise eyebrows for all sorts of reasons, and it has.

If just one bombed-out municipality has 139 farms it can hand over as security for a debt, how many such municipal farms are there scattered across the country?

That’s a question Leon Louw, executive director of the Free Market Foundation, wants answered: “What on earth is a municipality doing with 139 farms to give Eskom for debt security?

“That [Matjhabeng] has farms at all, let alone 139 farms, should generate a political and media outrage, yet the scandal went unnoticed.”

Expropriation without compensation pressures

Louw’s outrage is directed at the pressure to implement expropriation without compensation (EWC) on the pretext that the willing buyer/willing seller model has failed and more radical land redistribution is needed.

“It appears that municipalities are sitting on vast tracts of superfluous land.

“If the Matjhabeng municipality’s 139 farms are indicative of the rest of the country, the government has ample land for redistribution.”

Fovernment is about to auction off almost 900 vacant or underutilised state-owned farms across the country, a move aimed at helping those discriminated against during apartheid.

It begins to appear as if there is far more state-owned land available for redistribution than has hitherto been admitted.

Eskom says the Matjhabeng farms remain the property of the municipality until the dispute has been resolved in an outstanding court case.

Eskom – like municipalities – is under huge pressure to gather every cent owed to it and rein in ballooning arrears bills.

It explains the motivation for the land attachments: “Over the years Eskom has done everything within the company’s legal constraints to recoup unpaid debts from municipalities.

In addition to pursuing the legal route with individual municipalities, such as the recent action against the Matjhabeng and Maluti-a-Phofung municipalities, Eskom is actively engaging stakeholders such as the National Treasury, SA Local Government Association and the Department of Cooperative Governance and Traditional Affairs (CoGTA) to improve the payments by municipalities.

Eskom’s priority

“Our priority is to ensure that municipalities are in a position to settle their current accounts timeously. Working with National Treasury, we are ensuring municipalities adopt funded budgets that include the payments to Eskom.

“Eskom has over the years implemented many concessions such as reduced interest rates and increased payment days to make it easier for municipalities to settle their accounts.”

Earlier this year Eskom attached the cash accounts of another Free State municipality, Maluti-a-Phofung (which includes the town of Harrismith), which had run up arrears of R5.3 billion after defaulting on its electricity bill.

By order of court, Eskom released R90 million of the municipality’s seized cash, sufficient to pay workers.

Also earlier this year, it attached furniture, cars and other equipment in settlement of a R2.3 billion arrears bill owed by Emfuleni municipality, south of Johannesburg.

This followed a 2018 court order interdicting Eskom from cutting electricity supply to the municipality as this would prejudice customers who faithfully paid their bills.

Large businesses in the area, such as ArcelorMittal and Growthpoint, have lobbied to keep the lights on by paying Eskom directly, rather than repurchase power from the hopelessly insolvent municipality.

Residents of municipalities such as Govan Mbeki in Mpumalanga complain that they are being cut off by the municipality for up to eight hours a day, even though they are dutifully paying their bills.

It’s the same complaint heard in many other parts of the country.

Eskom says it does not intend to punish paying customers, but has no other option than to cut services to the defaulting municipality, which is mandated by the Public Finance Management Act and the Electricity Regulation Act.

“Interrupting of supply is a condition within the supply agreement Eskom has with its customers and is based on sound commercial law practice whereby a service is discontinued when non-payment for such service occurs,” says Eskom in reply to questions from Moneyweb.

Soweto residents ‘punished’

Residents of Soweto, which owes Eskom close to R18 billion, say they are punished when entire areas are disconnected, regardless of whether the individual customers have paid their bills.

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, disputes the R18 billion arrears figure and wants it subject to independent audit.

Power disconnections have led to social protests and vandalism of Eskom infrastructure in Soweto.

Sibiya wants an independent tribunal established to hear the individual merits of each complaint before deciding to disconnect power from people who are often living in desperate circumstances.

Eskom replies that all its tariffs are regulated by the National Energy Regulator, and it has no leeway to negotiate separate tariffs or have preferential arrangements outside of what is regulated.

Relief is available through the so-called Inclining Block Tariff (IBT), which is a form of subsidy to low-consumption residential customers.

Government also assists indigent households by providing Free Basic Electricity (FBE), a scheme that is administered by municipalities.

All users must pay

“In order to enable Eskom to sustainably and reliably supply electricity to the country, all consumers of electricity must pay for their consumption.

“Non-payment of electricity does not only affect the security of supply for paying customers, but it also contributes to increased energy and revenue losses coupled with increased operational costs,” says Eskom.

Eskom the best bet for an accurate land inventory?

If Eskom starts going after municipal-owned farms as it has just done in Matjhabeng, we may end up with a far more detailed inventory of state-owned land than has hitherto been the case.

If Matjhabeng has 139 farms, it seems certain that the state is squatting on a surfeit of land for distribution to the poor.

The supposed scarcity of land may be entirely manufactured by those with political ambitions.

Eskom may end up as a major landowner if more municipalities default, which may take some of the steam out of the push for EWC, which is far from a top priority for ordinary South Africans.

Says Louw: “Various ‘land audits’ supposedly document how much land is private, government, traditional, white, black or undefined. But they are all nonsense.

“Their common bizarre flaw is that they estimate land distribution by the most irrelevant criterion, area. ‘Whites own 80% of the land’ is an absurd popular refrain.

“Land by area implies that a hectare of desert is as valuable as a hectare of Clifton.”

This article first appeared on Moneyweb and was republished with permission.

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