Court rulings throw spanner into Eskom’s municipal debt collection works

Two recent court rulings have made it much more difficult for Eskom to leave paying municipal customers in the dark when cutting or restricting electricity supply to delinquent municipalities.

While this will hinder Eskom’s efforts to collect more than R30 billion in outstanding municipal arrears, it also calls to action other state institutions obliged to assist in resolving disputes between Eskom and local governments.

These include provincial departments, National Treasury and energy regulator Nersa.

The first judgement, delivered by the Supreme Court of Appeal (SCA) in the last days of 2020, dealt with applications by property group Resilient and business and tourism chambers in Sabie, Graskop and Lydenburg. They were fighting plans by Eskom to disconnect the eMalahleni and Thaba Chweu municipalities, both in Mpumalanga.

Sakeliga, part of the Solidariteit movement, joined the application as friend of the court.

The SCA found that it would be unlawful for Eskom to disconnect electricity supply to the municipalities, without first exhausting the mechanisms provided for resolving disputes between government entities provided for in the Intergovernmental Relations Framework (IRF) Act .

This vindicates the argument forwarded by Sakeliga.

The SCA found that municipal service delivery will completely collapse if Eskom cut electricity supply to the municipalities, because water and sanitation services are underpinned by electricity supply.

Eskom cannot ignore this, because as a state-owned company it has a constitutional duty to promote constitutional rights and assist and support municipalities to provide basic services.

Eskom failed to use the mechanisms provided for in the IRF Act and to lodge the disputes with National Treasury for mediation as it was legally obliged to do.

The SCA criticised Nersa, the national minister of cooperative governance, and her provincial counterpart for failing to intervene in the matters for years.

Eskom’s plan to cut electricity supply was also irrational, since it was aimed at collecting arrear debt and limiting the rate at which it was escalating, while acknowledging that the municipalities are simply not in a position to pay, the SCA found.

It pointed out that in both cases the debt accumulated over more than a decade and it was unrealistic to expect the municipalities to pay this in full in a short period.

Advocate Werner Zybrands, a municipal expert, pointed out that the court did not provide any timeframe for the intergovernmental dispute resolution.

He said he is unaware of any instance where these mechanisms were used where several municipalities, a state-owned company and provincial and national government were involved. “I expect Stalingrad (delaying) tactics, well-known within the ANC, to be deployed to the full,” Zybrands said.

He said even if the parties could come to an agreement, the implementation could take decades.

Second case

In the second case, decided in the Free State High Court early in January, the court followed the ruling in the Resilient case, but went further by giving Eskom and the Nketoana municipality six months for intergovernmental dispute resolution.

Nketoana is based in Reitz in the Free State and distributes electricity to Reitz, Petrus Steyn, Ntha and Lindley.

This might be a tall order, since the two parties have been unable to settle their dispute since 2016.

The ruling shows that Nketoana’s Eskom bill was in order until some time in 2013. Due to the conduct of “unscrupulous or corrupt” officials this changed and the municipality now owes Eskom more than R300 million.

That is according to Eskom.

Nketoana acknowledges that its account is in arrears. It told the court it is prepared to pay its dues, but disputes the amount. According to Nketoana, Eskom also owes it amounts related to the areas within its jurisdiction where Eskom distributes electricity directly to end-users.

These amounts, it argues, should be offset against its own outstanding amounts and will result in a much lower net debt.

Eskom has already credited Nketoana with R1.7 million on the basis of its claims, but the municipality maintains there is more outstanding.

Nketoana succeeded with its application for an interim order to stop Eskom’s plans to restrict electricity supply to the municipality until it has had an opportunity to debate the bill with Eskom.

Eskom has provided it with agreements, invoices and other documents upon which its claim is based, but the municipality says it does not have the expertise to properly assess the bill that covers several years.

It wants the opportunity to appoint experts to do a proper audit.

The court also found that Eskom’s plans were irrational, due to Nketoana’s inability to pay the bill and unreasonable due to the hardship it will impose on the residents.

Should Eskom proceed to disconnect the electricity supply without first exhausting the intergovernmental dispute resolution mechanisms, it would boil down to self-help, which is in conflict with the rule of law, the court found.

National Treasury’s problem

Piet le Roux, CEO of Sakeliga, welcomed the two rulings. He said the Nketoana ruling clearly directed the parties to submit their dispute to National Treasury. That means that the onus shifts to National Treasury to find a solution. “If that does not happen, National Treasury must be held accountable. We will keep a close eye on this matter,” he said.

Zybrands says the critical question is where the money will come from. Eskom needs it now. “In actual fact it means that the debt of all the bankrupt, dysfunctional municipalities will have to be paid by National Treasury,” he says.