Read more
Mafube Business Forum says it will be 'an absolute disaster' if Rural Maintenance is kicked out of the municipality. Picture: iStock
Despite the efficiency with which family-owned business Rural Maintenance manages the electricity supply on behalf of the Mafube municipality in the Free State, National Treasury wants its contract reviewed with a view to terminating it.
This recommendation is contained in a mandatory Financial Recovery Plan the Treasury drafted for the municipality, which Rural Maintenance has taken on review in the high court. Moneyweb has read the plan.
As part of the discovery process in preparation for the court hearing, Rural requested the record on which Treasury based its recommendation, but Treasury is fighting tooth and nail to keep it under wraps.
Rural succeeded with a high court application to get access to the documents late last year, but Treasury lodged an application for leave to appeal to a full bench. This application was dismissed last week as having little prospect of success.
ALSO READ: Mediation in Frankfort, Eskom dispute ‘futile’, says Nersa
Mafube, which includes the towns of Frankfort, Cornelia, Tweeling and Villiers, concluded a 25-year agreement with Rural in 2011 to manage the municipality’s electricity service on its behalf.
At that stage, Mafube’s electricity revenue was about R10 million less than its Eskom bill. It owed Eskom about R45 million.
Since taking over the service, Rural Maintenance has:
Jacques Jansen van Vuuren, spokesperson of the Mafube Business Forum, says:
“The municipality is now making a profit without lifting a finger. The community has modern electrical infrastructure that is being expanded, and our tariffs are among the lowest in the country.”
Rural made clever plans with the community to limit the impact of load shedding, and the service is superb. “Recently one of the transformers was hit by lightning during a storm at night. The next morning at eleven, it was already repaired.”
Where the community must rely on the municipality, there is, however, very little service delivery, he says.
“In the 2022 financial year which is the latest numbers we have, the municipality’s water losses amounted to R75 million – with that they could have paid salaries for six months!”
Out of desperation, the business forum, together with AfriForum, obtained a court order in 2022 to compel the provincial government to intervene in Mafube. Little has changed, however, and the parties went back to court late last year to get an order of contempt against the Free State premier and MEC for local government. The judgment is still pending.
ALSO READ: Has City Power been imposing much more load shedding than required?
It is against this background that National Treasury in August 2023 drafted its mandatory Financial Recovery Plan calling for a review of the contract with Rural Maintenance.
In the plan, Treasury questions the limited royalties of R2.5 million per year paid to Mafube and the fact that the calculations of the royalties allowed for electricity losses of 12.5% while the real losses are much lower at 5.5%.
“When we took over the electricity losses were at 50%,” says Chris Bosch, CEO of Rural Maintenance. “We had to decide on an acceptable level and decided on 12.5%.”
This percentage is deducted before the municipality’s royalties are calculated on a c/kWh basis. Rural benefits by reducing the losses further than 12.5%, which is a built-in efficiency incentive.
Hendrik Barnard, a municipal tariff consultant, says the 12.5% allowance for electricity losses is very realistic. In most struggling municipalities, it is much higher.
Treasury also complains that Rural fails to pay Eskom “constantly”.
According to Bosch, Rural has never paid Eskom late.
“When we enter Eskom’s offices, they start applauding, because they know they are getting their money.”
He says the only exception is that Rural decided a few years ago that it would no longer pay Eskom for the bulk purchases related to the municipality’s own electricity use because the municipality failed to pay Rural for its usage. “That is now an inter-governmental matter,” says Bosch.
It is unclear if National Treasury will now hand over the records underpinning its recommendation so the litigation can proceed.
In the meantime, Mafube is under provincial administration, but the appointed administrator retired late last year, and nobody has been appointed in his place, says Jansen van Vuuren.
“It will be an absolute disaster if Rural is kicked out of Mafube,” he says.
This article was republished from Moneyweb. Read the original here.
Download our app