Frankfort fight may be doomed as Treasury ‘reviews’ contract

Despite energy regulator Nersa having already appointed someone to hear the dispute between Rural Maintenance and Eskom about the former’s mitigation of load shedding in the town of Frankfort, the failure of the Mafube Local Municipality to support Rural Maintenance may derail the whole process.

Rural Maintenance is managing Mafube’s electricity distribution function in terms of a 25-year contract, which still has 14 years to go. Mafube includes the towns of Franfort, Villiers, Tweeling and Cornelia in the Free State.

The dispute centres on Rural Maintenance’s use of excess energy generated by four solar farms in the area to spare Frankfort residents from load shedding when the supply from solar exceeds the amount that must be shed.

The outcome of the dispute is considered key to the road forward for many communities in the process of developing similar projects.

Eskom argues that alternative energy that is being used as part of users’ normal load profile is already included in the baseline from which the reduction during load shedding must be achieved.

It therefore expects the alternative generation capacity to stand idle and only be deployed during load shedding.

The utility expressed its concern in court papers that if Rural Maintenance is permitted to continue with its practice, which it calls “voiding”, a large number of its customers will want to do the same “and Eskom’s ability to effectively manage the grid will therefore be severely compromised”.

Discouraging investment

Tommy Garner, chair of the South African Independent Power Producers Association (Saippa), says hundreds of projects countrywide are aimed at doing exactly what Rural Maintenance is trying to achieve.

Such projects must sell energy to be financially viable and that will be impossible if used only during load shedding.

Read: IPP investment will dry up if Eskom position prevails – Saippa

A court application by Rural Maintenance to retain control over the way load shedding is implemented in Mafube was dismissed due to the failure of the municipality to file an affidavit confirming its support for the company.

As an agent of the municipality, Rural Maintenance does not have the legal standing to litigate if it is unable to demonstrate support from the municipality, which is the entity licensed to distribute electricity in the area.

Rural Maintenance CEO Chris Bosch says the same may happen when the dispute is served before Nersa.

“If Eskom once again points to the position of the municipality, and I’m sure it will, we won’t be able to proceed with the dispute.”

‘Hands tied’

Mafube acting municipal manager advocate Mothusi Lepheane says his hands are tied.

The struggling municipality is under administration and the administrator has referred the contract between the municipality and Mafube to National Treasury for review.

“Municipalities are not allowed to have such [long] contracts without it being reviewed every three years,” says Lepheane.

That has never been done in this case, but Lepheane was unable to explain why not.

“I only joined [the municipality] in November,” adds Lepheane.

Until the review has been finalised, says Lepheane, he cannot enter into any matter pertaining to the contract on behalf of the municipality.

‘Smokescreen’

According to Bosch this is just a smokescreen.

“The municipality started making noises that it wants to get out of the contract three years ago,” he says.

The review required is in fact a performance review, not a reconsideration about the continuation of the agreement.

“Who would enter into a contract and invest millions of rands if there is a chance that it can be cancelled after three years?”

Bosch says Rural Maintenance has invested R120 million in Mafube to replace virtually all of the electricity distribution infrastructure.

The contract is structured so that the company will recover the investment over the 25 years.

It gets worse …

Mafube is in fact not paying Rural Maintenance for the electricity it consumes – it owes the company millions.

When the municipality is excluded, the company has a 100% collection rate and Eskom gets its full payment for bulk purchases every month, except for the portion used by the municipality.

The norm set by National Treasury is 95%. In the City of Tshwane, for example, only 60% of consumers pay their current accounts on time.

Mafube’s electricity losses – technical and theft – total just 5%, compared to Johannesburg, where almost 30% is lost.

‘Irrational’

Should the municipality walk away from the contract, it would be liable for the repayment of the capital investment as well as penalties, says Morné Mostert, head of municipal affairs at AfriForum.

AfriForum participated in the litigation as a friend of the court, based on its civil society involvement in Mafube.

Mostert says kicking Rural Maintenance out will be to the detriment of Eskom, because the only collections done by the municipality are those performed by Rural Maintenance on its behalf.

“National Treasury wants municipalities to improve their revenue collection. Rural Maintenance has done exactly that. It will be irrational to end the contract with them.”