Salga slams proposed Eskom agreement with Maluti-A-Phofung

The planned historic signing of a partnership agreement between Eskom and it biggest municipal debtor, the Maluti-A-Phofung municipality based in Harrismith, may be in jeopardy after the South Africa Local Government Association (Salga) publicly recorded its opposition to it.

According to Salga the proposed agreement, due to be signed on Thursday (24 November), “is only fuelled by one party’s needs” and that party is Eskom.

For the municipality it is not sustainable and flies in the face of local government legislation and even the constitution, said Salga in a statement issued on Friday (18 November).

The municipality’s debt to Eskom amounts to about R7 billion, which is a large chunk of the rapidly growing total of R52 billion outstanding municipal debt due to the utility.

Last Tuesday, Eskom chief operating officer Jan Oberholzer cited this debt as one of the main reasons the utility has run out of cash for diesel to keep the lights on.

He warned that load shedding will intensify and be more erratic as a result. On Sunday afternoon Eskom announced periods of up to Stage 5 load shedding this week.

Read: Eskom gets tough with errant municipalities, grabs cash and land [Oct 2020]

A government task team led by Deputy President David Mabuza has been working towards partnership agreements with the errant municipalities, but the progress has been slow and the successes few.

Keeping revenue out of the hands of the municipality

Salga says it has been involved in this process in Maluti-A-Phofung, together with the municipality, Eskom, National Treasury and the Department Of Cooperative Governance and Traditional Affairs.

The signing of the Maluti agreement has been postponed several times already, despite political pressure.

The municipality is led by the MAP16 Civic Movement (MAP16), founded by former ANC councillors.

In terms of the agreement Eskom will take over the total electricity distribution function in Maluti – “including all revenue related to the function”, which will be kept out of the hands of the municipality, says Salga.

This comes against the background of a court application by Salga for clarification that municipalities have the exclusive constitutional right to distribute electricity in the whole country.

Eskom is opposing the application because it would, if Salga succeeds, only be allowed to continue distributing electricity as an agent of the licensed municipality.

Financial sustainability concerns

Salga Electricity, Energy and Public Works Working Group chair councillor Tebogo Hlakutse says: “Of particular concern is the financial sustainability of the municipality [Maluti-A-Phofung] once Eskom takes over the electricity distribution function, including all revenue related to the function.

“The Distribution Agency Agreement also requires the Maluti-A-Phofung municipality to pay back the full debt amounting to almost R6 billion, as well as additional service fees.”

Hlakutse says if Eskom is appointed as service provider to the municipality, the process that is followed must comply with the Municipal Systems Act, which is not the case in this instance.

Salga is clearly worried that this agreement may become the model for dealing with other municipalities in arrears with Eskom and says “if it is going to be a future model for assisting municipalities, [then] it must be done correctly, and should not create unwarranted precedence to the detriment of Maluti-A-Phofung and other municipalities who might want to enter into similar arrangements with Eskom or any other similar entity”.

Salga says it has provided advice and defended Maluti-A-Phofung against signing an agreement that is “unfair and unsustainable” and has proposed a process “within which this partnering should be finalised, and this is legislated for municipalities under the Municipal Systems Act, when a municipality wants to appoint an external service provider to provide services in its jurisdiction”.

Who will ultimately pay?

Bertus Maritz, attorney at Bokwa Law Incorporated who has close knowledge of the matter and has been involved in similar negotiations in other municipalities, says that by signing the agreement Maluti-A-Phofung will acknowledge the total debt as calculated by Eskom, “including where wrong tariffs were used and where up to a third is administrative costs”.

Maritz says it is unlawful for the municipality to appoint Eskom to perform this municipal function on its behalf without any public participation process and without consulting the labour unions.

He says electricity sales and property rates are the main sources of income for a municipality. By signing the agreement, Maluti will lose all its electricity revenue.

In addition, the municipality is unable to collect property rates in Phuthaditjhaba [the former homeland of QwaQwa], which is a large part of the area under its jurisdiction.

As a result, the financial burden of funding the municipality will have to be carried by the residents of Harrismith and Kestell, says Maritz.

“You will see, [after the agreement takes effect] it will be three months before the national treasury will have to step in to bail Maluti out,” says Maritz.

Independent Online reported that the sheriff attached vehicles and other assets of the Maluti-A-Phofung municipality on Thursday (17 November) following a court order obtained by some of the council’s creditors.