Municipality threatens to sue Eskom after handing over 139 farms worth R2.5bn

The Matjhabeng municipality in Welkom, which recently gave 139 farms to Eskom as security for R3.4 billion outstanding debt, is now threatening to sue the power utility for an even bigger amount.

It has asked National Treasury to mediate in the intergovernmental dispute between the two entities, but says in its letter that Eskom seems to prefer “the legal route”.

Moneyweb earlier reported that Eskom attached the municipality’s bank account following a court order on 4 September.

This was aimed at collecting R3.4 billion arrear debt Eskom claims from Matjhabeng for bulk electricity purchases.

A week later the two parties were back in court to make an agreement between them a court order. In terms of the agreement Matjhabeng regained control over its own bank account.

It however gave as security to Eskom 139 farms it owns, valued at R2.5 billion.

The farms remain the property of the municipality, but it will register bonds in favour of Eskom and be precluded from selling the farms until the dispute between the two parties has been resolved, Eskom said in a statement.

Not a new issue

Eskom said it has been in a legal battle with Matjhabeng since 2014 when its outstanding debt amounted to R372 million.

The municipality is however disputing its current outstanding balance of R3.4 billion and wants to have all the detail to understand how Eskom arrives at that number.

According to Matjhabeng’s attorney Bertus Maritz from Bokwa Law Incorporated, Eskom has been ignoring repeated requests for such information.

He has since written to Eskom to give it one last opportunity to supply it with the information, failing which it will go to court once again.

In the letter that Moneyweb has seen, Matjhabeng also threatens to issue summons against Eskom for the damages it has suffered due to Eskom’s distribution of electricity in the municipality’s area of jurisdiction.

This he calculates at 20% of Eskom’s electricity sales to mines, farms and other clients within the municipal borders to the value of R1.32 billion and a further R3.65 billion the municipality has lost because it does not have access to electricity disconnections as a debt collection mechanism in Eskom distribution areas.

Eskom did not respond, Maritz says.

A plea to Treasury

He then wrote to National Treasury hoping to sort the matter out without going to court. On the eve on the 8 October deadline, he had not had any response from National Treasury either.

The letter refers to “Eskom’s failure to act bona fide and conduct itself in an open and professional manner in order to promptly address issues between two organs of state”.

The municipality claims that Eskom is infringing on the constitutional mandate of municipalities to distribute electricity, which it claims is exclusive, and trumps the distribution licence issued to Eskom by energy regulator Nersa.

It states that Eskom refuses to sign a service level agreement with the municipality, which is a legislative requirement and deprives the municipality of the opportunity to earn revenue from electricity sales in 26 of its 36 wards.

It acknowledges Eskom’s argument that the municipality finds itself in financial difficulties due to its failure to act against arrear debtors, but says it is impossible to issue summons to 30,000 consumers very month.

Apart from the fact that there are not enough attorneys to do that, half of the local population is unemployed and such action would result in unrest, the municipality argues.

According to Matjhabeng, other municipalities are in the same position and it is important to resolve the principles at national level.

In July, arrear municipal debt to Eskom amounted to R31 billion.

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