In an unprecedented move by government to settle more than R35 billion in debt owed to Eskom by struggling municipalities, the government will, going forward, support court applications that will compel owing municipalities to enter into active partnership agreements with the power utility that will see them forfeit their legally mandated functions of electricity distribution, reticulation and revenue collection services.
As a result, Eskom will be legally mandated to act as an agent for the struggling municipalities and execute electricity distribution, reticulation and revenue collection services. Municipalities will then be invoiced for all costs incurred and services provided by Eskom.
This announcement was made by Deputy President David Mabuza on Tuesday afternoon during a question and answer session in the National Council of Provinces.
It follows the Pretoria High Court which last week ordered Eskom to take over the electricity distribution of one of its biggest debtors, the Maluti-a-Phofung Local Municipality in the Free State.
Of the R35 billion owed to Eskom by municipalities across the country, Maluti-a-Phofung owes the power utility more than R5 billion.
Mabuza said the intention of the service level agreement between the power utility and Maluti-a-Phofung in particular “is to allow Eskom to take over the distribution of electricity and the collect the revenue, which will result in Eskom then giving to the municipality what is due to it” while the entity also recuperates monies owed to it.
The deputy president said this system would be advantageous as it would result in Eskom bringing in the necessary skills that would help maintain the electricity infrastructure system and also lead to the upskilling of municipal employees by skilled Eskom employees who would be roped in.
“We are going to follow such a model [of Eskom entering into active partnership agreements with municipalities] being implemented in all the municipalities that are owing Eskom because municipalities on their own are unable to pay Eskom,” said Mabuza.
He explained that the service level agreement with Maluti-a-Phofung and the ones envisioned with other owing municipalities will be “four or five-year agreements”.
“The service level agreement is going to be for a particular period. It will not be forever because the reticulation and distribution of energy and water is a function that belongs to municipalities,” said Mabuza.
The interim order by the Pretoria High Court provides for the National Energy Regulator of South Africa (Nersa) to approve the distribution agency agreement between Maluti-a-Phofung and Eskom within two weeks of the June 8 judgment and Nersa has agreed to this role.
Should the two parties fail to reach an 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.
Mabuza, however, said government had not challenged the court ruling handed down after an application by the 16 applicants – including Afgri Milling, the Harrismith Business Forum, Nestlé South Africa, Nouwens Carpets and Busamed Harrismith Private Hospital – because they were in support of this proposal that would see Eskom recoup some of the money owed to it.
He said as far as he was concerned, both the Maluti-a-Phofung Local Municipality and Eskom were “very close” to signing the agreement.
This arrangement is not a new undertaking as Eskom has in the past 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.
Other municipalities that could soon relinquish their electricity reticulation, distribution and tariff collection functions are Emalahleni in Mpumalanga, which, as of June 2019, owed Eskom R2.7 billion, Matjhabeng in the Free State which owes R2.3 billion, Emfuleni in Gauteng which is R1.4 billion in debt and Govan Mbeki municipality in Mpumalanga which owes R1.2 billion to the power utility.
The worst offender as of June 2019 was, according to Eskom records, Soweto, which is not in a single municipal area, but is the worst offender with R18.9 billion in unpaid bills.
Electricity revenue and rates are the two major sources of income for all municipalities and such an undertaking might further bankrupt these already struggling municipalities.
CALL FOR COMMUNITIES TO PAY FOR SERVICES
Mabuza said to continue to receive services such as electricity and water, citizens must develop a culture of paying for the services they utilise.
“Let’s encourage our people who are working to pay for these services. The effects of non-payment of services that are consumed is huge as the municipality then fails to maintain the infrastructure that it uses to deliver these services such as the pipes and electrical systems.
“Going forward, we are going to do our best to ensure that our people are billed correctly. We are going to install smart meters so that the electricity that you must pay for is equivalent to what you have used.
“The bottom line is that we should request our people to pay for services because this is the correct culture,” said Mabuza.