<\/p>\n
Eskom\u2019s announcement that another nine municipal councils have adopted resolutions to enter into Distribution Agency Agreements (DAAs) with it is probably putting the cart before the horse.<\/p>\n
This is clear from a discussion with Zamo Gwala, head of municipal finance and fiscal policy at the South African Local Government Association (Salga).<\/p>\n
Read:
Ekurhuleni electricity tariff application inflated by billions
Eskom defiantly sticks to current municipal DAA<\/p>\n
Gwala emphasises that municipalities must first follow a legally prescribed process, which will not necessarily result in Eskom being appointed.<\/p>\n
Section 78 of the Local Government: Municipal Systems Act requires municipalities that are considering outsourcing a municipal service such as electricity distribution to first conduct a thorough study to determine their internal capacity to provide the service.<\/p>\n
If, based on the outcome, they decide to appoint an external service provider instead, they must follow a proper tender process in which Eskom may participate, but will not necessarily emerge as the successful bidder.<\/p>\n
This corresponds with the position of National Treasury.<\/p>\n
\nThe DAA is Eskom\u2019s response to the growing problem of municipal arrears for bulk electricity purchases from the utility.<\/p>\n<\/blockquote>\n
Several municipalities, including some smaller ones, owe billions in arrears. Collectively, municipalities owe Eskom more than R111 billion.<\/p>\n
Minister of Electricity and Energy Kgosientsho Ramokgopa has repeatedly described this as an existential crisis for Eskom that could negate the impact of government\u2019s debt relief package of more than R230 billion aimed at strengthening Eskom\u2019s balance sheet.<\/p>\n
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Read:
Eskom switch-off: These are the municipalities at risk
Eskom sent to redraft \u2018one-sided\u2019 municipal distribution agreements<\/p>\nSo far, three municipalities have concluded DAAs with Eskom \u2013 Maluti-a-Phofung, based in Harrismith; Emfuleni, based in Vanderbijlpark; and Merafong City, based in Carletonville.<\/p>\n
The first two resulted from court orders, while the Merafong agreement was concluded without the municipality following the Section 78 process. This makes the agreement vulnerable to legal action.<\/p>\n
\nEskom has been extremely guarded about the details of its DAAs, and little is known about whether they have been successful.<\/p>\n<\/blockquote>\n
Nevertheless, the power utility is rolling out DAAs more widely.<\/p>\n
Eskom expands DAA rollout <\/strong><\/p>\n
Steelburger News, a community newspaper in Lydenburg, recently reported that another four municipalities have been identified by the Mpumalanga provincial government for DAAs.<\/p>\n
These are the Lekwa, Emalahleni, City of Mbombela and Thaba Chweu local municipalities.<\/p>\n
In March, Eskom notified 14 municipalities that their electricity supply could be cut off due to non-payment unless they exercised one of three options, including entering into a DAA.<\/p>\n
\nIt was in response to this threat that the nine municipalities adopted the council resolutions.<\/p>\n
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The nine municipalities are the Nketoana, Mpofana, Masilonyana, Nala, Ngwathe, Renosterberg, Thembelihle, Govan Mbeki and Kgetlengrivier local municipalities.<\/p>\n
DAA model and Eskom\u2019s role\u00a0<\/strong><\/p>\n
The first three DAAs, which Moneyweb has seen, are very similar.<\/p>\n
They provide for Eskom to take over the electricity distribution service as an agent for the municipality, including the supply of electricity, meter readings, billing, revenue collection, as well as repair and maintenance work.<\/p>\n
Read: Salga red-flags Eskom\u2019s \u2018backdoor takeover\u2019 of municipal distribution<\/p>\n
Consumers would no longer pay their accounts to the municipality. Instead, payments would be made directly into Eskom\u2019s bank account.<\/p>\n
Eskom would then apply the funds in an agreed order:<\/p>\n
\n
- First paying the municipality\u2019s current bulk account;<\/li>\n
- Then covering the cost to serve;<\/li>\n
- Thereafter capital expenditure; and<\/li>\n
- Lastly, using the money to settle arrear debt.<\/li>\n<\/ul>\n
The chances of municipalities receiving any leftover funds appear very slim.<\/p>\n
In addition, a service fee of up to 10% for Eskom is built into the agreements.\u00a0It is unclear whether this will be added to municipal electricity tariffs.<\/p>\n
National Treasury regards the agreement as extremely one-sided and is insisting on several amendments, but Eskom is resisting.<\/p>\n
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Salga\u2019s\u00a0<\/span>Gwala further says it cannot be a generic agreement because it must address the issues identified during the Section 78 process.<\/p>\n
\nOne of the matters Salga regards as very important is that municipalities should still be able to use electricity disconnections as a credit-control measure.<\/p>\n<\/blockquote>\n
The current agreement does not provide for that.<\/p>\n
The organisation is in the process of obtaining a legal opinion on the DAAs.<\/p>\n
\u2018Undermining\u2019 the Section 78 process<\/strong><\/p>\n
Paul Mudau, associate professor in the Department of Public, Constitutional and International Law at Unisa, says a council resolution that expressly identifies Eskom as the entity to assume electricity distribution functions may indeed raise difficulties if it is adopted before the Section 78 process has been properly concluded.<\/p>\n
\u201cSection 78 of the Municipal Systems Act is designed to ensure an open, evidence-based assessment of the available service delivery options, including the implications for cost, capacity, and accountability.<\/p>\n
\u201cPre-emptively naming a specific service provider risks creating a perception that the outcome of the process has been predetermined, which could undermine both the procedural integrity of the Section 78 enquiry and the procurement principles of fairness, transparency and competitiveness required by Section 217 of the Constitution,\u201d says Mudau.<\/p>\n
\u201cIn that sense, while a council may express an intention to explore an alternative delivery model, care must be taken not to fetter the discretion that the Section 78 process is meant to preserve.\u201d<\/p>\n
Read:
Eskom\u2019s municipal debt solution a \u2018takeover by stealth\u2019?
Treasury \u2018advises\u2019 15 municipalities to let Eskom take over
Merafong councillors in the dark about Eskom\u2019s electricity takeover<\/p>\n<\/p><\/div>\n#slip #municipal #cup #Eskom #lip<\/p>\n","protected":false},"excerpt":{"rendered":"
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