Municipalities want another slice of the pie, this time from IPPs

Independent power producers (IPPs) will have to pay a surcharge to municipalities when they supply electricity to clients within their areas of jurisdiction if the South African Local Government Association (Salga) has its way.

Salga also calls on municipalities to ensure they have network charges on their tariff books that are cost-reflective as more consumers install solar panels but remain connected to the electricity grid.


Subscribe for full access to all our share and unit trust data tools, our award-winning articles, and support quality journalism in the process.

Salga bases its claim for a surcharge on what it considers to be an exclusive right, reserved in the Constitution, for municipalities to distribute electricity in South Africa.

‘Seller must compensate municipalities’

The sale of electricity is one of the main sources of income for municipalities and if someone else does it, the seller must compensate municipalities for the loss of income, according to Salga head of electricity and energy Nhlanhla Ngidi.

The IPP surcharge is over and above the network charges IPPs will pay for the use of the municipal distribution system.

Salga has for years been fighting for Eskom to sign service level agreements with municipalities for sales in municipal areas that Eskom supplies directly. Such an agreement will provide for a surcharge to be paid to the local municipality.

An inter-ministerial committee approved this in 2018, but little progress has been made with the implementation.

Keeping up with progress

This principle is now extended to IPPs as the electricity supply industry diversifies.

Ngidi says the surcharges will be imposed in terms of the Municipal Fiscal Powers and Functions Act. The City of Cape Town has for some time had a surcharge on electricity sales imposed in terms of this act.

Imposing any such surcharge requires the approval of the minister of finance.

Bokwa Law Incorporated attorney Bertus Maritz says the Matjhabeng municipality in Welkom, which he represents, has already lodged a claim of R4.5 billion against Eskom as compensation for electricity sales in its area of jurisdiction.

This is in terms of the common law principle of unjustified enrichment and is part of an extensive legal battle characterised by claims and counterclaims.

Maritz says the Kai Garib municipality in Kakamas in the Northern Cape is preparing a similar claim that has provisionally been quantified at R411 million.

The calculations are made at a rate of 20% of Eskom’s electricity revenue, pending some information to be supplied by Eskom.

Martiz says Matjhabeng is also preparing a draft municipal bylaw for electricity surcharges on sales within its borders by Eskom or anybody else. The municipal council is expected to approve it later this month.

Private operators using the grid

Thembani Bukula, former full-time member of the energy regulator Nersa for electricity and now CEO of the electricity trader PowerX, says as the local electricity supply industry transforms, more and more independent power producers will make use of the national grid to wheel electricity to end-users in other locations.

Already power is for example being wheeled from a biomass plant outside Bronkhorstpruit to the BMW plant in Rosslyn, Pretoria, using the Tshwane distribution network.

The parties pay the metro for the use of its system.

According to Bukula, apart from Tshwane and Nelson Mandela Bay, few other municipalities have developed such tariffs.

He is however sceptical about the justification for a surcharge and says Eskom direct distribution came about when Eskom electrified townships because the municipality couldn’t.

He is of the opinion that a surcharge would only be justified if the municipality compensates Eskom for the infrastructure it established.

Ig du Plessis, director of solar power solutions provider Sonfin, says Eskom does allow clients to bank their excess power and utilise it later, but they can only offset what they use and can carry it forward within a banking year that ends on March 31.

Eskom applies three different additional admin charges that range from R6.06 to R96.08 each per day, depending on the size of the connection.

He says municipalities that Sonfin has dealt with do not so far allow offsetting and therefore no additional charges apply.

Mike Levington, a director of Kabi Solar, says it is understandable that municipalities question where their revenue will come from if electricity distribution is taken out of their hands.

The power purchase agreement between an IPP and its customer is however a private agreement and he is not sure that the use of a municipal network that parties pay for can be regarded as power “distribution”.

Levington says municipal tariff structures are in any case completely inappropriate and stakeholders should sit around a table and find a solution for the whole country, rather than fighting each other in court.