Legal action awaits if Eskom continues to cut power, warns AfriForum

AfriForum has sent a formal notice to Eskom requesting that it not proceed with the suspension of electricity supply to towns due to arrears in municipal debt. The organisation argues that Eskom’s latest notices have legal shortcomings and that their enforcement will therefore be unlawful.

Earlier this week, Eskom issued notices to 14 municipalities setting strict conditions. In terms of these notices, municipalities must settle their outstanding debts or accept one of three options:

1. The adoption of a council resolution to enter into an distribution agency agreement (DAA) with Eskom, in terms of which Eskom takes over responsibility for the distribution of electricity
2. The conversion of the municipality’s system to a prepaid model, whereby the municipality will only receive electricity for which it has paid in advance.
3. An agreement under which municipal residents pay their electricity bills directly to Eskom and are charged at Eskom’s tariffs.

AfriForum warns that the implementation of a prepaid system could have serious consequences. “If municipalities switch to a prepaid system, it is highly likely that they will not be able to purchase sufficient electricity to power a town for a full month. The most vulnerable members of communities, including the elderly and patients in hospitals, will be hit the hardest. Water and sewage infrastructure could come to a standstill, which could cause a humanitarian and infrastructure disaster. In addition, residents who pay their bills faithfully are unfairly disadvantaged,” says Deidré Steffens, Advisor for Local Government Affairs at AfriForum.

According to AfriForum, it is also not financially feasible for municipalities to transfer electricity bills to Eskom entirely. “The sale of electricity forms a core component of many municipalities’ income. If this income were to disappear, municipalities’ financial structures could collapse within a short period of time,” adds Steffens.

AfriForum believes that Eskom is aware that in practice municipalities only have one remaining option, namely the conclusion of a DAA. Although such agreements may offer a workable solution, this must be done strictly in accordance with the provisions of the law. In the current circumstances, however, municipalities are being pressured to conclude such agreements without proper compliance with legal requirements.

In terms of section 78 of the Municipal Systems Act 32 of 2000, a municipality that wishes to appoint an external service provider must first conduct a feasibility study and follow a proper public participation process. AfriForum argues that Eskom’s notices do not provide municipalities with sufficient opportunity to comply with these legal requirements.

“By confronting municipalities with unrealistic options without leaving room for legal processes, Eskom is putting them under unfair pressure and excluding communities from participating in decisions that affect them. The end result of this could be that Eskom, which is itself already exposed to financial management challenges, gains an even greater monopoly in South Africa and excludes other role players from the market,” says Morné Mostert, Head of Local Government Affairs at AfriForum.

The organisation points out that the Electricity Regulation Act 4 of 2000 stipulates that any change in a licensee’s distribution responsibilities must be approved by the National Energy Regulator of South Africa (NERSA).

AfriForum has therefore also sent a letter to NERSA requesting the following confirmations and undertakings:

• Confirmation of whether NERSA has granted written approval to any municipality to cede, transfer, and/or assign its electricity reticulation services to Eskom in terms of a DAA.
• An undertaking that NERSA will exercise its powers under the Electricity Regulation Act by preventing Eskom and any municipality from entering into a distribution agency agreement without complying with the legal requirements that apply to the appointment of an external service provider.

“NERSA is supposed to play a central role in this scenario, but once again they are nowhere to be seen. One of NERSA’s main focuses should be what licensees are doing with their responsibilities, including the distribution of power,” Mostert concludes.

AfriForum emphasises that there are several other competent companies that can successfully implement distribution agency agreements. However, according to the organisation, Eskom’s current approach hinders fair competition and places municipalities and communities in a difficult position.