Eskom to take over electricity distribution and billing in struggling Maluli-a-Phofung

The High Court in Pretoria is expected to grant a final order next week that will mandate Eskom to act as an agent for the struggling Maluti-a-Phofung municipality in Harrismith and execute electricity distribution on its behalf.

Eskom has confirmed that this will constitute the first of several so-called active partnership agreements with struggling municipalities that includes “a full suite of active partnering which includes distribution, reticulation and revenue management services”.

Legislative stumbling blocks

While commentators have warned against numerous stumbling blocks in municipal legislation, the 16 applicants – including Afgri Milling, the Harrismith Business Forum, Nestlé South Africa, Nouwens Carpets and Busamed Harrismith Private Hospital – based their arguments on constitutional grounds that allow the court to find a just and equitable remedy that cuts through other legislation.

Maluti-a-Phofung is one of several municipalities which together owed Eskom R35.3 billion at the end of March, and large power users have already been paying their electricity bills directly into Eskom’s account for some time following an earlier court order.

The latest agreement was supported in court by energy regulator Nersa, and the minister of finance and Free State MEC for finance have been ordered to appear in court on June 8. They will be required to indicate whether the provision in the agreement that the municipal electricity revenue will be paid directly into Eskom’s bank account is reason not to make the court’s earlier order final.

Commentators earlier pointed out that municipal legislation requires that all municipal revenue be paid into the municipality’s principal bank account.

Attorney MC Botha of Joubert Galpin Searle, who represents the applicants, says intense engagements are ongoing to address the concerns and establish a lawful contractual framework for Eskom to provide the service on behalf of Maluti-a-Phofung.

Process

The interim order provides for Nersa to approve the Distribution Agency Agreement between Maluti-a-Phofung and Eskom, and Nersa has agreed to this role.

Should the two parties fail to reach agreement within two weeks of the issuing of a final order, Nersa must settle the dispute within three weeks. Failing this, either party can go back to court.

According to Eskom the municipality still has the obligation to consult stakeholders about the agreement. It is not clear when this will happen.

‘Dire’ situation

Municipal consultant Werner Zybrands says the situation in many municipalities is so dire that parties must find alternatives.

He however cautions that the court order will result in a side-stepping of control measures in municipal laws.

At a practical level he warns against fierce resistance from communities that are currently not paying for electricity when Eskom tightens collection practices.

If communities are consulted about the agreement after it has already been finalised, it would serve no purpose, he says.

He further poses many questions about, for example, human resource management of municipal staff where Eskom takes the lead and makes arrangements around funding.

The issue of central control

Zybrands warns against diminishing democracy at local level in favour of central control and asks how ratepayers in Harrismith will hold Eskom, based in Sandton, to account.

Eskom has so far entered into partnerships with the Phumelela municipality in Vrede in the Free State and Raymond Mhlaba municipality in Fort Beaufort in the Eastern Cape to assist with revenue collection in certain areas, and with the Msunduzi municipality in Pietermaritzburg for the maintenance of the distribution network.

Assistance aspect

The agreement with Maluti-a-Phofung is for five years and Eskom hopes that at the end of this period the power utility “would have assisted the municipality with building its capacity and skills transfer including billing and revenue collection capability”.

“For service delivery improvement, priority will be given to the maintenance and upgrading of the municipality’s substations and distribution network,” it adds.

Eskom says the results may vary depending on the specific challenges each municipality may face.

“However, Eskom expects to see improvements in revenue collection within 4-12 months, improvement in security of supply and improved service delivery within 1-2 years. Infrastructure refurbishment will take up to 5 years and is dependent on available funding.”

Eskom says each agreement will spell out the list of services to be rendered.

Funding

“Funding will be a combination of sources from National Treasury, Department of Mineral Resources and Energy, interest bearing loans and/or self-funding from the collections.

“The municipalities will be invoiced to reimburse Eskom for all costs incurred and services provided.”

Bertus Maritz, an attorney with Bokwa Incorporated who represents several Free State municipalities, warns that depriving Maluti of its electricity revenue may result in higher rates.

“Electricity revenue and rates are the two major sources of income for all municipalities.

“Maluti-a-Phofung will still have to pay salaries but be without any revenue from electricity sales,” says Maritz.

“Large portions of its area of jurisdiction is tribal land and the rates burden is largely on those people living in the towns.”

• This article originally appeared on Moneyweb, and has been republished with permission.