Councils want monopoly on electricity delivery in South Africa – despite massive debt and failures

The South African Local Government Association (Salga) has filed an application with the High Court in Pretoria for a declaratory order that would give South African municipalities exclusive rights to administer, distribute and sell electricity throughout South Africa.

There are eight metropolitan municipalities, 44 district municipalities and 205 local municipalities in South Africa, the boundaries of which stretch across South Africa.

This means that municipal areas cover the entire landmass of South Africa.

If successful, Salga’s lawsuit would require Eskom to obtain authorization and enter into service provision agreements (SDAs) with each of the municipalities in which the national electricity company currently owns and operates its electricity transmission and distribution networks.

Eskom says it will vigorously defend its rights under the Electricity Regulation Act (ERA).

As a South African electric utility, Eskom has obtained transmission and distribution licenses from the National Energy Regulator of South Africa (Nersa) since the inception of the Regulator.

Eskom supplies electricity directly to approximately 6.9 million customers in South Africa. These include approximately 6.7 million residential customers, 53,000 commercial customers, 3,560 mining and industrial customers, 78,500 agricultural customers and 470 rail customers across the country.

Gwede Mantashe, Minister of Mineral Resources and Energy

Other organizations also hold distribution licenses from Nersa and are named as defendants alongside Eskom in the Salga application to the High Court in Pretoria.

These include Sasol, AECI, South Africa National Parks, Mpumalanga Economic Growth Agency, West Rand Power Distributors, Vleesbaai Dienste, Damplaas Kragbron and Ithala SOC .

It is also known that a number of mines located in remote areas of South Africa are powered directly by Eskom for their own use, and that some of these mines also distribute electricity to associated local employees and residential areas. of the mining community.

The ministers of mineral resources and energy, public enterprises and cooperative governance and traditional affairs, as well as the regulator, Nersa, are also cited as respondents in the Salga request.

Salga’s lawsuit appears to ignore the fact that many municipalities in South Africa are in fact failing to meet their service delivery obligations.

Locally, residents are deeply unhappy with the levels of service and the quality of supply in these municipal areas, as evidenced by widespread and ongoing protests and civil unrest.

Many municipalities are in a state of extreme financial distress, with associated failures in municipal administration, billing, revenue collection and asset protection.

Domestic and commercial customers supplied by municipal electricity distributors complain of exorbitant mark-ups on electricity purchased from Eskom and large and continuous blackouts due to old and poor municipal electricity distribution infrastructure. maintained.

The financial and administrative weakness of many municipalities in South Africa is such that they are not only unable to properly collect the income of their customers, but they are also unable or unwilling to pay for the electricity they obtain. with Eskom.

Currently, municipalities owe their debt to Eskom in excess of R40 billion, and the number is growing steadily, at a rate of approximately R8 billion per year.

As a result, Eskom was forced to engage in what is euphemistically known as “burden reduction”.

This involves cutting off the electricity supply to the offending municipal areas at certain times of the day, both as a credit control mechanism and to avoid overloading Eskom’s power system by customers who do not pay for electricity. that they use.

All of this massively disrupts the operations of businesses powered by municipal electricity distributors, and results in loss of income, productivity and jobs, as well as an inability to grow and adequately meet the needs of the community. South Africa in terms of economic recovery and growth after the Covid-19 pandemic.

Nkosazana Dlamini Zuma South African Minister for Cooperative Governance and Traditional Affairs
Nkosazana Dlamini-Zuma, Minister of Cooperative Governance and Traditional Affairs

It seems pretty clear that Salga’s candidacy is driven primarily by the ambitions of local government structures to raise the price of electricity across South Africa to the levels charged in municipal electricity tariffs.

In addition, municipalities want to be able to apply levies and surcharges on the sale of electricity across South Africa, including direct sales of electricity by Eskom.

Salga recognizes that commercial and industrial customers supplied directly by Eskom obtain electricity at prices significantly lower than those supplied by municipalities. Salga complains that this undercutting of municipal tariffs by Eskom is discriminatory.

“Eskom customers often pay less for electricity than their counterparts who receive electricity from municipalities. The total revenue lost by municipalities in 2019, for example due to the supply of Eskom within municipalities [area of] jurisdiction, is 162.36 billion rand, ”says Salga.

“What this means commercially is that a company located in an area served by Eskom will pay less for electricity than a company located in an area served by a municipality. Indeed, the old business will operate with an unfair advantage over the one provided by the municipality, ”continues Salga.

Salga further complains that municipalities lose out by not being able to apply charges and surcharges on sales of electricity by Eskom to its own customers, as do municipalities when supplying electricity to their own customers. .

“In 2019, municipalities lost an opportunity to generate nearly R6 billion in surcharges due to direct supply from Eskom,” he said.

Salga also laments the fact that municipalities cannot cut off electricity as a measure of credit control against customers in Eskom’s supply areas who may be behind on their municipal tariffs, water and electricity bills. sanitation.

This, according to Salga, results in lower levels of revenue collection by municipalities for these other municipal services and results in a loss of overall municipal revenue.

Xolile George, CEO of the Association of Local Governments of South Africa

It would appear, if Salga is to be believed, that the answer to all of this is to demand that Eskom and all other licensed electricity distributors come under the executive control of the relevant municipality in which the electricity customers reside.

This would give municipalities the right to require an SDA from all electricity distributors and to charge Eskom and other electricity distributors for the right to operate in municipal areas (i.e. throughout the city). ‘South Africa).

It would also allow municipalities to apply levies and surcharges on the sale of all electricity in South Africa to finance and subsidize all kinds of municipal costs, activities and services.

Salga says municipal and local government structures have been trying to get Eskom’s approval since 2013.

However, Salga says the national electricity company has “been hot and cold on the issue of SDAs with municipalities” for years, and has been recalcitrant in failing to enter into and close out of SDAs.

“Unfortunately, all of these commitments were in vain due to disagreements between those in charge of Salga and Eskom,” says Salga.

While Eskom, Sasol, AECI and other licensed electricity distributors have indicated their intention to oppose Salga’s claim, it appears that to date none have actually submitted their opposition documents. in court, which Salga said should have been done by mid-October 2021.

In addition, the spokespersons for the Ministers of Minerals and Energy, Public Enterprises and Cooperative Governance and Traditional Affairs, and the regulator, Nersa, all remain “shtum” when asked if, as as named respondents, they will oppose Salga’s request.

This issue is clearly such a hot potato, with massive financial impacts on the South African economy and on electricity customers, large and small, currently supplied directly by Eskom, that none of the relevant ministries and regulators are ready to apprehend it.

From the extended silence, it seems pretty clear that machinations are now underway behind the scenes and that no one is ready to come out publicly with a statement on the matter, especially to make a decision or allow the court to rule. on the matter by declaratory order.

Perhaps the political solution will be to push the boundaries for ten years or so.

Now Read: Eskom To Defend 20.5% Electricity Price Rise

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