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ConCourt deals major blow to Eskom’s efforts to recover billions in municipal electricity debt

ConCourt deals major blow to Eskom’s efforts to recover billions in municipal electricity debt
Luyanda Makhathini uses a paraffin light while cooking during rolling blackouts at her home in Soweto. (Photo: Reuters / Siphiwe Sibeko)

The Constitutional Court has found that Eskom erred in 2020 when it reduced the electricity it supplied to the Ngwathe Local Municipality in the Free State and the Lekwa Local Municipality in Mpumalanga. The power utility erred because it failed to consult with or inform affected residents and businesses in the municipalities before cutting the power.

Eskom’s efforts to recover outstanding electricity payments from heavily indebted municipalities have been dealt a blow by the Constitutional Court.  

SA’s top court trashed Eskom’s tough practice of unilaterally switching off the lights at the Ngwathe Local Municipality in the Free State and the Lekwa Local Municipality in Mpumalanga, which each owe the power utility more than R1-billion in unpaid electricity bills. At last count, the Ngwathe municipality owed Eskom R1.467-billion and the Lekwa municipality owed R1.536-billion. 

The Constitutional Court found that Eskom erred when it reduced the electricity it supplied to the municipalities in 2020 and effectively threw them into the dark, without informing or consulting with affected residents and businesses.  

It’s a victory for residents and ratepayers of the Ngwathe and Lekwa municipalities as the court ruled that Eskom’s decision to reduce their bulk electricity infringed on their human rights, as set out in the Bill of Rights.  

“Eskom’s decision to reduce electricity supply has adversely affected the residents’ right to dignity, their right of access to healthcare services, their right to an environment that is not harmful to health or well-being, the right to basic education and the right to life,” wrote Justice Mbuyiseli Madlanga in a majority ruling supported by justices Mathopo, Mhlantla, Theron and Tshiqi.  

Ratepayers of the Ngwathe and Lekwa municipalities initially took Eskom to the Pretoria High Court, where they successfully secured an interdict that blocked the power utility from reducing their electricity. Eskom, which has long-standing electricity supply agreements with the municipalities in arrears, was also ordered to provide the municipalities with “full power”.

The interdict was granted on an interim basis and would remain in place until the ratepayers pursued a separate court application, which relates to whether Eskom’s decision to throttle the amount of bulk electricity it supplied to the municipalities should be reviewed and set aside.  

Eskom then took the matter on appeal to the Constitutional Court. The power utility lost the appeal as the Constitutional Court upheld a ruling by the Pretoria High Court and ordered the power utility to “restore electricity supply to what it was before the reduction” until the separate court application is heard by the lower court. 

Eskom struggles to recover municipal debt  

The case at the Constitutional Court was a litmus test for Eskom’s ability to recover unpaid debt from municipalities, which increased by R9.5-billion to R44.8-billion during the year to March 2022. Of the R44.8-billion debt, Free State municipalities owed 35.2%, Mpumalanga municipalities owed 29.6% and Gauteng municipalities (mainly Soweto) owed 12.9%. 

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. 

But Eskom is losing the battle of recovering municipal debt. In 2022, Eskom entered into payment agreements with 34 defaulting municipalities, but only 10 of the agreements are being fully honoured. Other municipalities simply ignored De Ruyter’s approach. 

Without collecting debt from municipalities, which forms a crucial part of its revenue, Eskom cannot service its smothering debt load of R396.3-billion. And the power utility will be pushed to ask the government for more bailouts. 

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The plight of ratepayers in Ngwathe and Lekwa municipalities  

About its loss at the Constitutional Court, Eskom said it would “abide by the Constitutional Court decision while exploring measures to safeguard its best interests in the matter”. 

The Constitutional Court was sympathetic to the fact that ratepayers in Ngwathe and Lekwa municipalities were thrown into the dark by Eskom through no fault of their own. 

The Ngwathe and Lekwa municipalities are deeply dysfunctional 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 argued at the Constitutional Court that Eskom’s “irrational and unreasonable” decision to disconnect their power, without informing them, had caused “human and environmental catastrophes”, even though they were not at fault.   

The power disruptions have affected essential services such as water supply and the functioning of sewage works, throwing the economies of the municipalities into a tailspin. In Lekwa (Standerton), large employers are threatening to withdraw from the town because of power disruptions. 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. 

The rights of ratepayers  

In his ruling, Justice Madlanga said the matter was about correcting Eskom’s flawed action of reducing ratepayers’ bulk electricity without allowing them to make representations to the power utility. 

“In the present matter, it is the sudden substantial reduction of electricity that resulted in the rights violations. The logical corrective measure to address the rights violations is the reversal of the causative act. That is, the restoration of the usual electricity supply. How else do you halt the rights violations? Do you do nothing and throw up your hands in complete despair whilst the violations continue unabated? If that were the case, the law would really be the proverbial ass,” wrote Madlanga. 

He said section 7(2) of the Constitution placed an obligation on the state (which includes Eskom as an organ of the state) to respect, promote, protect and fulfil the rights in the Bill of Rights. 

“The section 7(2) obligation to respect the rights in the Bill of Rights entails that the state must refrain from unreasonable conduct that results in the infringement of rights in the Bill of Rights.” 

A minority judgment, written by Acting Justice David Unterhalter (concurred with by justices Kollapen, Majiedt and Mlambo), had a different view about the rights of ratepayers in Ngwathe and Lekwa municipalities.  

Unterhalter found that the ratepayers had failed to prove that they had a constitutional right to directly receive electricity from Eskom, rather than from their municipalities. This is because the regulatory framework for electricity supply (mainly under the Local Government: Municipal Structures Act) places the responsibility on the municipalities and their managers, not Eskom, to supply bulk electricity to ratepayers.

“Municipalities … have constitutional and statutory duties to procure and pay for bulk electricity and then to supply electricity to residents. That must be done by the provision of a system of reticulation that serves the residents, makes provision for the poor, within the resources available to a municipality, and implements a budget to collect revenue so that the municipality can procure electricity to supply to its residents.” 

In essence, the ratepayers could have fought against the municipalities and not Eskom. DM/BM


Comments - Please in order to comment.

  • Johan Buys says:

    There is only one way to deal with this : Treasury should pay Eskom directly from the central allocation. Then, no money for the local politicians to steal. If we don’t, then all that happens is Eskom does not collect 10% of its revenue, it writes it off, and you and me pay an extra 10% tariffs next year. Enough! Draw the line somewhere for heavens sake! If not, by 2025 most people that do and can pay will do their own energy. Good luck running Eskom with 50% only non-paying constitutionally protected users.

  • Rob vZ says:

    “In essence, the ratepayers could have fought against the municipalities and not Eskom.”
    Could have or should have? If the municipality is Eskom’s customer and the ratepayer is the municipality’s customer, then yes, Eskom is not responsible for the ratepayer as they are not their customer. The issue of course is that they are both owned by the same “company” ( ie. the government ), so it feels like the correct court decision, but it does seem to let corrupt and failing municipalities off the hook, and accelerates the debt load of Eskom.

  • jacki watts says:

    This is a most rediculous judgment. Unterhalter’s judgment is the only sane perspective… So Eskom is penalized because the Municipality is inept, criminal, certainly disfunctional… What a travesty… Cry our beloved country….

  • Trevor Pope says:

    The MFMA needs to be changed to ring-fence bulk utility revenues from general municipal revenues to stop the problem from occurring in the first place. Pity the concourt didn’t suggest this.

    • Thinker and Doer says:

      Yes, indeed, that would be a very important amendment to make. It is impossible for Eskom to address the mounting backlog of arrears it is owed unless there is some legislative reform.

  • Daniel Cohen says:

    Imagine running a business where you are forced to supply your products to customers who you know are not going to pay! However, if Eskom is an organ of the State (according to the CC) then it is not a business and should be treated as a public good and financed in that way. The problems, of course, don’t go away, they just have another name. Publically owned non profit ( one objective (maybe) being to break even) utilities are run as well or as badly as the quality of their political and executive management.

  • Hermann Funk says:

    Surely there must be enough evidence to bring those to court who have failed to forward the fees to ESKOM that consumers paid for electricity.

  • Richard Bryant says:

    If I have to prepay for electricity, why shouldn’t the same apply to municipalities? The idea that a municipality can receive electricity on credit and at the same time receive payment for electricity in advance from ratepayers is just too much of a lure for corrupt and useless municipality officials. Makes absolutely zero commercial sense.

    The biggest question for 2023 then is what happens when Eskom defaults on its mountain of debt. How much of that debt is owned by foreign institutions? Can they force a process of business rescue and place Eskom under administration?

  • Richard Baker says:

    The nations so called progressive constitution, in combination with the way “social” services are structured and (intended to be) paid for, are unworkable and unsustainable.
    The drafters have written cheques to the population which can never be cashed!

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