Multiple municipalities risk Eskom power cuts as deals remain unsigned

According to National Treasury, none of the 14 municipalities that have until 1 September to conclude a Distribution Agency Agreement (DAA) with Eskom to avoid having their electricity supply cut off has done so yet.

This leaves considerable uncertainty about the future of electricity supply in these towns.

The municipalities, which owe Eskom substantial amounts of money, were warned in March that Eskom had run out of patience and they could be left in the dark. Eskom issued them with an ultimatum, with a DAA among a limited number of options to prevent their electricity supply from being cut off.

Outstanding municipal debt to Eskom has already reached R119 billion and is regarded as the biggest threat to its sustainability.

National Treasury set deadlines by which the municipalities first had to adopt council resolutions indicating that they were prepared to appoint Eskom as their agent for electricity distribution.

They then had to follow the legally prescribed steps to conclude such an agreement by 1 September.

The agreements

These agreements, of which there are currently four in the country, involve Eskom temporarily taking over the entire electricity distribution function in the municipality concerned, at a fee.

Consumers’ payments for electricity purchases go directly into Eskom’s bank account instead the municipality’s. Eskom retains the amount for bulk electricity sold to the municipality as well as its cost to serve, according to a pre-determined merit order. The balance is paid to the municipality.

The arrangement is highly controversial and there are questions about its legality.

Eskom initially used a fairly standard contract, which National Treasury described as heavily skewed in Eskom’s favour.

A working group – comprising representatives from Eskom, National Treasury, municipal association Salga and the departments of Electricity and Energy, and Cooperative Governance and Traditional Affairs – was supposed to develop a more balanced standard contract, but this has not yet happened.

Nevertheless, Eskom recently proceeded to conclude a new DAA with the Ditsobotla municipality.

Progress (or not)

Eskom announced in May that nine municipalities had adopted the required council resolutions.

They are Nketoana, Mpofana, Masilonyana, Nala, Ngwathe, Renosterberg, Thembelihle, Govan Mbeki and Kgetlengrivier.

The power utility also indicated that it had reached a payment agreement with the Ekurhuleni metro municipality.

Inxuba Yethemba municipality agreed with Eskom to pay for its electricity upfront. This means Eskom supplies only the amount of electricity the municipality can afford.

These two municipalities were subsequently removed from the list of municipalities at risk of supply interruptions.

At that stage, Eskom said Dr Beyers Naudé, Kai !Garib and Mamusa had not yet made submissions proposing a solution.

Since then, however, Dr Beyers Naudé obtained a court order to remove the threat of an electricity cut-off so that it could follow the legally prescribed process to outsource its electricity distribution function.

This process was apparently not followed in any of the four municipalities where such DAAs are currently in force, which is one of the grounds for AfriForum’s court application to have the agreement with Merafong set aside.

‘No progress’ in Masilonyana municipality

Marieta Visser, a DA councillor in the Masilonyana municipality in the Free State, says no progress has been made with the legal process that should precede the DAA in that municipality.

There is currently an administrator in the municipality, while both the municipal manager and chief financial officer have been suspended but are challenging their suspensions in court.

Municipal workers have been on strike since mid-June, rubbish is piling up, and the taps are dry.

Possible extension?

Salga previously asked National Treasury on behalf of the municipalities to extend the deadline for concluding DAAs by six months.

With only a few days remaining before 1 September, National Treasury told Moneyweb last week that it was “considering the information provided in support of the application”.

It said it would shortly communicate with the affected municipalities regarding its response.

This article was republished from Moneyweb. Read the original here.