Municipalities want surcharge from clients who buy directly from Eskom

Municipalities countrywide hope to get the green light from the courts to add a surcharge to electricity tariffs paid by clients who buy directly from Eskom.

There is no clarity on how much that would be, but if an application by the South African Local Government Association (Salga) on behalf of about 257 municipalities succeeds, it may result in sharp increases for people in townships and rural areas, including industry and farmers.

Eskom is however opposing this move.

Henk Langenhoven, economist at the Minerals Council, says if such surcharges are also enforced on mines, mining companies will battle even more to compete globally and it will pose a further hurdle for investment decisions.

Salga has asked the High Court in Pretoria for a declaratory order stating that municipalities have the exclusive mandate to reticulate (distribute and sell) electricity.

It further asks the court to make an order to compel Eskom to enter into a service delivery agreement with each municipality where it distributes and sells electricity directly to end users.

History

In an affidavit supporting the application Salga CEO Xolile George explains that municipalities historically distributed electricity only within their borders, which before 1996 did not include townships and rural areas.

When the country adopted a system of wall-to-wall municipalities in 1996, electricity distribution was not adjusted accordingly.

Municipalities however rely on a profit on electricity sales as one of their major sources of income, but are robbed of the opportunity to generate such income in large parts of their jurisdiction, because it is done by Eskom without any benefit to the council.

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According to George, municipalities missed out on a total of R162 billion in revenue in 2019 alone. If they were allowed to add a surcharge to Eskom’s tariffs, they would have jointly earned an extra R6 billion.

He further states that disconnecting consumers who are in arrears on their municipal accounts is an important credit control measure. Since they are precluded from this in Eskom distribution areas, payment rates are markedly lower there.

System is ‘discriminatory’

George notes that as a result of the current situation different customers within the same municipality pay different rates, which is discriminatory.

Moneyweb has previously reported that end users in Soweto and Sandton pay Eskom tariffs, even though they are situated within the borders of the Johannesburg metro.

Especially large users are paying much less than their counterparts served by Johannesburg’s City Power.

George says Salga has been trying to come to an agreement with Eskom since 2013.

Eskom however maintains that electricity reticulation is a concurrent function and it is doing nothing wrong.

Salga earlier declared an intergovernmental dispute and an interministerial task team was appointed to deal with the matter, but to no avail.

Looking for clarity

That is why it is now seeking clarity from the court, and to be allowed the surcharges and to effect disconnections through Eskom.

Apart from Eskom, Salga cited as respondents the ministers of mineral resources and energy; cooperative governance and traditional affairs; and public enterprises; as well as energy regulator Nersa and seven private distributors, including Sasol, AECI and South African National Parks.

AECI and two other private distributors, Damplaas Kragbron, which distributes electricity to some rural areas around Petrus Steyn in the Free State, and Vleesbaai Dienste, are also opposing the application.

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The Association of South African Chambers (Asac) says “it is clear that their [municipalities’] sole target is to extract additional income from the productive sector in areas where they currently do not distribute.

“From this perspective, their target is to further plunder in areas where they are not in control nor able to do so.”

Asac says in a perfect world “where municipalities are competent and/or not run by crooks and thieves, Salga’s proposals might be acceptable and provide for a uniform base for tariffs and service delivery across South Africa”.

“It is common knowledge that mismanagement at the majority of municipalities form a serious threat. Municipalities burden business with poor delivery, expect them to pay for substantial inefficiencies and target to extract further taxation from the productive sector.

“Many of Salga’s members manage reticulation border to border and most of these members do a very poor job. Many of them have become financially unsustainable.

“In this environment, Salga’s application tastes very sour and Salga’s stance forms a serious threat to the economic development of South Africa,” adds Asac.

Christo van der Rheede, CEO of AgriSA, says farmers are already battling sharp increases in their input costs. Further increases in electricity cost will set them on a track towards bankruptcy.

“This is just another opportunity to loot,” he says.

Professor Bernard Bekink from the Department of Public Law at the University of Pretoria agrees with Eskom that the functions are concurrent and says organs of state should work together to provide services to communities.

This article first appeared on Moneyweb and was republished with permission. Read the original article here.