Court battle looming over municipal electricity monopolies

The business grouping Business League, which is part of the Solidarity movement, plans to join the court battle in which municipalities are trying to get the exclusive right to distribute electricity countrywide.

Municipal association Salga — the South African Local Government Association — which represents 257 local authorities countrywide, has approached the high court in Pretoria for a declaratory order stating that municipalities have the exclusive right to reticulate – that is, distribute and sell – electricity.

Salga further wants the court to compel Eskom to enter into a service-level agreement in areas where it does the distribution. Eskom as well as some private distributors, such as AECI and Damplaas Kragbron situated in the Free State near Petrus Steyn, are opposing the Salga application.

According to Eskom, distribution is a concurrent function that both itself and municipalities may execute.
Eskom currently does the distribution in most townships including large parts of Soweto, in Sandton (including Sunninghill) as well as the Waterfall City mega-development node (driven by JSE-listed Attacq) and also supplies many farmers and miners directly.

The tariffs in Eskom distribution areas are generally considerably lower than those where end users buy from their local municipality, which, according to Salga, constitutes unlawful discrimination.

If Salga’s legal bid is successful, the municipalities will not necessarily take over the distribution in the Eskom areas, but may levy a surcharge on Eskom tariffs.

Amicus curiae

Municipalities may also compel Eskom to assist with disconnecting the power supply to end users whose municipal bills for water and property rates are in arrears.

The Business League, which according to its website represents about 40 000 businesses and business owners, has given instruction to its lawyers to apply to be joined to the Salga action as amicus curiae, or friend of the court.

The grouping says it does not agree with Salga’s interpretation of the constitution as reserving the right to distribute electricity to municipalities exclusively.

It says such a situation will be detrimental to end users in dysfunctional municipalities that fail to pay for their bulk purchases from Eskom.

The Business League played an important role as amicus curiae in the precedent-setting case between Resilient Properties and Eskom, where the state-run power company was precluded forthwith from disconnecting supply to end users when their municipalities fail to pay Eskom.

In a case in the North West province, it argued for the appointment of a paymaster to ensure that municipalities pay for critical services.

Business League CEO Piet le Roux said it wants to see more space for private electricity distribution where municipalities fail, rather than a bigger role for Eskom. He says Eskom is already being considered “too big to fail” and increasing its role in distribution will entrench that.

Private sector players may include profit-driven companies as well as those that operate on a non-profit basis.

Le Roux says there is no reason there should be only one distributor per municipality and if private sector players find a way to distribute electricity more efficiently, municipalities should not stand in their way.

Electricity sales currently form the second largest source of income for municipalities after property rates.
Le Roux says like any other organisation that fails to provide an efficient service, municipalities must improve their operations or find an alternative source of income.

If private sector players find a way to distribute electricity more efficiently, municipalities should not stand in their way

Henk Langenhoven, economist at the Minerals Council SA, earlier said that if the application is successful and results in surcharges in addition to the tariffs local mines are currently paying, it will be even more difficult for them to compete globally and will pose a further obstacle to investment in South Africa.

Christo van der Rheede, CEO of AgriSA, says farmers are already battling high electricity costs. Any further increases will set them on course for bankruptcy. “This is just another opportunity to loot,” he adds.

No date has been set for the court to hear the application.

It comes against the background of a tariff application by Eskom for an increase of at least 20% that will take effect on 1 April. Stakeholders have until 14 January to submit written comments on the application and energy regulator Nersa will hold virtual public hearings on the matter from 17 January.

Nersa is expected to finally determine Eskom’s tariffs for the next financial year in February.

• This article was originally published by Moneyweb and is republished by TechCentral with permission