POWER POLITICS
ConCourt hears of ‘human catastrophe’ after Eskom cuts off municipalities owing billions
Eskom has cut the electricity supply of two local municipalities that collectively owe R2.8bn, causing devastation for municipalities at the forefront of employment and economic activity.
Was Eskom justified in disconnecting power to local municipalities that owe it billions of rands in unpaid electricity bills and, in the process, causing harm to households and businesses that are not at fault and are being thrown into darkness?
And can Eskom unilaterally reduce power supply to municipalities in arrears or refuse them more electricity despite both parties being bound by long-standing electricity supply agreements?
These are questions that were before the Constitutional Court on 23 May as Eskom sought to overturn an earlier court’s ruling that forced it to fully restore electricity to two municipalities that collectively owe it R2.8-billion. The heavily indebted municipalities are the Ngwathe Municipality in the Free State (owing Eskom R1.3-billion) and the Lekwa Municipality in Mpumalanga (owing R1.5-billion).
The Ngwathe and Lekwa local municipalities are deeply dysfunctional, Eskom has argued, as they haven’t paid for the electricity they have received, even though their customers/residents pay electricity bills on time. So, residents pay electricity fees on time via pay-as-you-go meters or monthly post-paid arrangements, but the municipalities are not handing over these payments to Eskom.
Ratepayers in the municipalities have argued at the Constitutional Court that Eskom’s “irrational and unreasonable” decision to disconnect their power has caused “human and environmental catastrophes”, even though they were not at fault. In court papers, Herman van Eeden, who acts for associations representing ratepayers in the Ngwathe and Lekwa municipalities, says power disruptions have impacted essential services such as water supply and the functioning of sewage works, throwing the economies of the municipalities into a tailspin.
Crumbling economy and quality of life
In Lekwa (Standerton) alone, which has a population of about 115,000 and whose economy depends on agricultural activity, large employers are threatening to withdraw from the town because of power disruptions, which “will increase the already staggering unemployment rate”. At last count, the official youth unemployment rate in Lekwa was 35%, according to Statistics South Africa. An abattoir in the town faces permanent closure, putting 54 jobs at risk.
The short supply of water owing to Eskom power disruptions (also affecting the functioning of water pumps) has forced Lekwa residents to extract water from the raw sewage-filled Vaal River, which is the main water source for the whole of Gauteng.
Van Eeden says the quality of life for Lekwa residents has deteriorated.
“The Standerton Hospital does not have sufficient standby capacity [generator] to allow the facility to provide medical services in a Covid hot spot. The medicine in the local pharmacy may be lost. People in old-age homes, inter alia 43 people in frail care, may suffer inhumane deaths owing to the short supply of electricity.
“The 62 schools are unable to maintain standards of hygiene. The fire brigade cannot function. Shops are closing down and real-estate development is adversely affected…”
Efforts by Ngwathe and Lekwa residents to initiate talks with officials of Eskom, municipalities and respective provinces to restore electricity supply have been unsuccessful, says Van Eeden.
Test of Eskom’s reform process
The case at the top court will be a litmus test for Eskom’s ability to recover unpaid debt from municipalities, which stood at R40.9-billion by the end of September 2021. Without collecting debt from municipalities, which forms a crucial part of its revenue, Eskom cannot service its smothering debt load of more than R360-billion. And the power utility will be pushed to ask the government for more bailouts.
The debt by local municipalities has accumulated because, over the past decade, Eskom has been lax in its collection methods and continued to supply offending municipalities with electricity. This entrenched a culture of nonpayment among municipalities, households and businesses. Political leaders – too afraid to upset their voter base – have also refused to tell people they must pay for electricity.
But since he was appointed as Eskom CEO two years ago, André de Ruyter has intensified collection efforts, going to the extent of dragging municipalities to court to have their bank accounts and assets (such as furniture) attached to recover outstanding payments. De Ruyter has also taken a less adversarial approach, opting to stay out of court by entering into payment agreements with municipalities. In 2021, Eskom engaged with 45 municipalities to engineer a payment agreement. But the Maluti-A-Phofung municipality in the Free State, Eskom’s largest defaulter owing it R5.9-billion by the end of September 2021, snubbed the power utility’s payment plan proposal. Eskom has since dragged the Maluti-A-Phofung municipality to court.
Constitutional Court case
At the Constitutional Court, Eskom has argued that it should not be compelled to provide the Ngwathe and Lekwa municipalities with more electricity than what it has already provisioned for in its supply agreement with the municipalities.
On 28 September 2008, Eskom concluded an agreement with Ngwathe municipality that details the power utility’s responsibility of supplying bulk electricity to the municipality. This agreement, known as the Notified Maximum Demand (NMD) agreement, sets a maximum amount of power a municipality can draw from Eskom. NMD agreements can only be renegotiated if municipalities do not owe Eskom any money. The Lekwa municipality also has a similar agreement with Eskom. The municipality later renegotiated with Eskom to increase the maximum amount of electricity it can draw from the power utility to 22,260 kilowatts.
But the Lekwa and Ngwathe municipalities demanded and used more electricity from Eskom for many years, exceeding the maximum amount of electricity under their NMD agreements. Now both municipalities owe Eskom billions of rands, and the power utility is not prepared to give them more electricity until they settle their debt. In 2020, Eskom reduced the amount of electricity it supplies to Lekwa and Ngwathe municipalities, resulting in power cuts.
Ratepayers for the two municipalities took Eskom to the High Court in Pretoria in August 2020 to urgently block it from cutting power. The ratepayers won their case and Eskom was ordered to provide them with “full power”. Eskom is challenging the interdict at the ConCourt, saying energy regulator Nersa, and not the courts, has the legislative powers to resolve the dispute. Judgment is yet to be delivered.
To restore electricity to Lekwa and Ngwathe municipalities, Eskom says it would have to spend at least R21-million to improve the electricity infrastructure of the municipalities, which had deteriorated owing to a lack of investment and maintenance, and as a result of illegal connections. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.
How can one expect Eskom to ever recover if they are forced to continue supplying defaulting customers. It should be the responsibility of the Provincial Authorities to firstly pay Eskom the owing amounts and secondly by sorting out the mess in their municipalities by enforcing proper governance.
I agree with Johann.
As usual it will be the poorest of the poor who suffer while Eskom and the Provincial Authorities sort out this tragic mess.
If only we had relevantly qualified people in management positions, perhaps this debacle would not have developed to a state where mind-numbing amounts are in arrears.
Definitely is not Eskom at fault here. They did not cause the problem of non payment for services but the ANC cadres ruining the municipality now pleading with victim mentality. The true victims are the poorest of the poor. Right thing to do is follow the missing money and act on the culprits.
Shouldn’t the ratepayers rather take their municipalities to court? Clearly I don’t understand the legal process…
What a sorry state of affairs. But the local users of electricity can not claim innocence by stating that they are paying their electricity bills. The municipality officials that they elected are corrupt/incompetent or a combination of the two yet the citizens of those municipalities repeatedly reelected these officials. Why should Eskom (a.k.a. taxpayers) bail these people out.
There needs to be legislation to deal with non-functioning municipalities that triggers removal of these municipality officials without delay and independent ‘businesss rescuers’ appointed by a politically independent authority to take over administration of that municipality.
Those are exactly my thoughts Paddy. Get rid of the municipal fraudsters, no “suspensions” or severance packages, nothing.
Hard to argue against your point, except to say that the people who repeatedly vote the municipal officials into power are probably not rate payers, nor are they paying for electricity. It’s the law-abiding ratepayers who are frustrated – they pay AND they have no power. This is what “One man – One vote” gets us.
It will be fascinating to see the judgement. With Eskom being a monopoly supplier and consumers having no choice the implications for society (taxpayers via the government for the state owned enterprise) potentially having to underwrite the financial default of both individuals and the municipalities and even companies has the potential for a commercially incendiary outcome
This is when the relevant provincial governments should be held responsible and guarantee the debts of their municipalities. We, and the government, can’t blame Eskom for not collecting payment and then refuse to act against the municipalities. The offending municipalities are guilty of fraud – collecting money for services and then not paying Eskom. Perhaps we should let Eskom supply the municipality’s customers directly?
An economy contains a circular network of payments between actors. Any blockage or undue holdup by an actor has cascading effects down the line and around the economy. If these effects could be measured, they would vastly exceed the actor’s original liability. The circular health goes to the heart of the efficiency of the economy, and in the end effects its growth rate (or not).
Social relief is not the responsibility of actors such as Eskom or the mines, although they may choose to do so. Given a social democracy it is up to a government to make it work, primarily via taxation and relief payments. If a local authority has a deficit, its obligation should nevertheless be honoured, and the state should make up the difference, by agreement. The focus should return to the accountability of the local authority and central government, making it clear to voters that their choices have consequences.
Lets make this VERY clear – THIS IS NOT ESKOM’s FAULT – it is the municipalities that are grossly mismanaged that are the cause of these issues.
Cut off the defaulters, and anyone with proof of payments should be able to get Eskom to supplied directly. Ideal, but unlikely, unfortunately!
If there is one thing this article makes clear…is that (some) municipalities are using the supply of electricity as a ‘cash cow’ … and treating the cow (eskom) as a gift to their racketeering. Those municipalities in ‘default’ should begin with ‘cleaning up’ their abuse with getting rid of the grifters on their payroll and or reducing their fat salaries !
It seems to me that under NMD the two municipalities did not ensure that those who pay get first right of supply. But the municipalities probably don’t know, because they are in a mess and dysfunctional. Perfect opportunity to get the private sector in the mix with renewables.
As a general comment, please note that municipal officials are not elected, they are appointed and should (legally) work independent of political influence. The municipal administrative environment is complex; maybe there needs to be a campaign to enlighten the public on how it is supposed to work (I mean that in a constructive manner). Understanding will help.
Having said that – at failing municipalities it is mostly either due to untrained/incompetent/skelm officials – ten to one employed by political task masters – who are at fault. Politicians make policy, but this has to adhere to a legal policy framework. If electricity income is therefore received, there is NO legitimate reason for the finance and engineering officials to NOT sign off on the monthly Eskom payments.
If municipalities are bankrupt, it is either through incompetent administration, non-payment by ratepayers, poor financial management/theft and fraud, or the municipality was never viable (there are many of those).
This leaves the provincial authority to step in and place the municipality under administration, while sorting out the mess. This include paying Eskom from provincial sources; sorting out viability of said municipality, getting rid of the dead wood, firing any corrupt politicians and putting proper administration is place.
Now, if only those provincial and national governments were capable and not corrupt. Sigh.
PS – I wonder which of the defaulting municipalities are in the Western Cape?
Is it not possible for Eskom to supply directly? It is way past time electricity thieves are punished. The same goes for thieves in all parts of government and the civil service. As to those who keep voting for the thieves – there is no cure for stupidity.