Eskom loses SCA appeal to cut off power to two municipalities

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Municipalities owe Eskom more than R34 billion. Picture: Bloomberg
Municipalities owe Eskom more than R34 billion. Picture: Bloomberg
  • Eskom has lost two appeals to cut power supply to two municipalities that are indebted to the power utility.
  • The Pretoria high court previously set aside Eskom's decision to cut supply to the municipalities, and the power utility was allowed to appeal both cases.
  • The Supreme Court of Appeal delivered its ruling on Tuesday.

Eskom has lost two appeals related to a high court ruling setting aside its decision to cut off power supply to two Mpumalanga municipalities – Thaba Chweu and Emalahleni.

The Supreme Court of Appeal's (SCA) deputy president Xola Mlungisi Petse delivered judgment electronically on Tuesday. The SCA dismissed Eskom's two appeals but upheld an appeal by the Thaba Chweu local municipality relating to a cost order. All three appeals were heard together - for convenience, even though they were lodged separately over two days in August.

The two municipalities are highly indebted to Eskom, with debt jointly running into the billions. As a result Eskom had threatened to cut power to get the municipalities to settle their arrears, according to the judgment. The municipalities had signed acknowledgements of debt and agreed to reduce the arrear amounts in 12 months, however they could not fulfill the obligation.

Eskom subsequently published notices to invite stakeholders in the municipalities to make representations as to why power supply should not be interrupted for a scheduled four and a half hours a day, according to the SCA judgment. Eskom however was not moved by the representations made by Resilient Properties – which owns a shopping mall in Emalahleni. This prompted Resilient and other companies in Emalahleni and the Sabie Chamber of Commerce in Thaba Chweu to lodge separate applications with the Pretoria High Court – seeking a declaration that Eskom's decision to cut power was unlawful and unconstitutional.

While the high court held that Eskom had the right to reduce or terminate supply to customers if they fail to honour an agreement for the supply of electricity, or contravened payment conditions of a distributor's licence – Eskom however failed to comply with its statutory and other obligations to find alternative solutions to the dispute. It ruled that Eskom's decision was unconstitutional and unlawful.

Eskom was later granted leave to appeal the high court's decision at the SCA.

Resilient and several local chambers of commerce and tourism had dutifully paid the municipalities, however the municipalities failed to pay Eskom, according to the judgment.

"The facts of these appeals graphically illustrate the distressing state of municipal governance in this country, which depict a picture of the dysfunctional state of affairs bedevilling local government," the judgment read.

"The Emalahleni Local Municipality (ELM) and the Thaba Chweu Local Municipality (TCLM) … have been aptly referred to by counsel as financial delinquents, dysfunctional municipalities, and municipalities plagued by poor governance and financial mismanagement."

The SCA heard that the power cuts disrupted businesses, households, schools, hospitals and even sewage systems and water systems.

Eskom however argued that it had to take these measures due to the municipalities' failure over "several years" to pay for power, which was in breach of their contractual obligations. "They had also failed to honour their payment obligations undertaken in terms of the acknowledgment of debt arrangements that they had each respectively signed," the judgment read.

Eskom said cutting power was an attempt to arrest the mounting debt owed by the municipalities.

"Eskom further alleged that failure to take the drastic measures it had adopted would ultimately impact negatively on its overall capacity to generate electricity… the whole country would be plunged into darkness, with disastrous consequences on many fronts," the judgment read.

But the SCA noted that Eskom's decision to extract payment from municipalities by cutting power supply was "drastic", especially as it knew it would not result in the "financially strapped" municipalities settling their debt – within the short space of time. Turning the situation around would have required interventions by the provincial and national government – it was beyond the power of the municipalities, according to the judgment.

"Eskom, as an organ of state, cannot act in a manner that renders another organ of state unable to discharge its constitutional and statutory obligations. It must therefore follow that Eskom’s impugned decisions were irrational," the judgment read.

According to the SCA, the planned interruptions also failed to address underlying reasons for the inability of the municipalities to pay their arrears and current debt.

"Accordingly, the high court cannot be faulted for concluding that Eskom’s impugned decisions fell to be set aside on this basis too," the SCA judgment said. Eskom's appeals were dismissed with costs.

Eskom CEO Andre de Ruyter previously said that municipal debt was more than R34 billion, and the utility Eskom has had to take an assertive approach - such as cutting power and attaching bank accounts and vehicles - to get the attention of elective officials, Fin24 previously reported.

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