Councils want surcharge on Eskom direct sales

High court asked to declare power distribution an exclusive municipal function.
The move could result in sharp electricity price increases for those in townships and rural areas, including industry and farmers. Image: Waldo Swiegers/Bloomberg

Municipalities countrywide hope to get the green light from the courts to add a surcharge to electricity tariffs paid by clients who buy directly from Eskom.

There is no clarity on how much that would be, but if an application by the South African Local Government Association (Salga) on behalf of about 257 municipalities succeeds, it may result in sharp increases for people in townships and rural areas, including industry and farmers.

Eskom is however opposing this move.

Read:

Henk Langenhoven, economist at the Minerals Council, says if such surcharges are also enforced on mines, mining companies will battle even more to compete globally and it will pose a further hurdle for investment decisions.

Salga has asked the High Court in Pretoria for a declaratory order stating that municipalities have the exclusive mandate to reticulate (distribute and sell) electricity.

It further asks the court to make an order to compel Eskom to enter into a service delivery agreement with each municipality where it distributes and sells electricity directly to end users.

History

In an affidavit supporting the application Salga CEO Xolile George explains that municipalities historically distributed electricity only within their borders, which before 1996 did not include townships and rural areas.

When the country adopted a system of wall-to-wall municipalities in 1996, electricity distribution was not adjusted accordingly.

Municipalities however rely on a profit on electricity sales as one of their major sources of income, but are robbed of the opportunity to generate such income in large parts of their jurisdiction, because it is done by Eskom without any benefit to the council.

According to George, municipalities missed out on a total of R162 billion in revenue in 2019 alone. If they were allowed to add a surcharge to Eskom’s tariffs, they would have jointly earned an extra R6 billion.

He further states that disconnecting consumers who are in arrears on their municipal accounts is an important credit control measure. Since they are precluded from this in Eskom distribution areas, payment rates are markedly lower there.

System is ‘discriminatory’

George notes that as a result of the current situation different customers within the same municipality pay different rates, which is discriminatory.

Moneyweb has previously reported that end users in Soweto and Sandton pay Eskom tariffs, even though they are situated within the borders of the Johannesburg metro.

Especially large users are paying much less than their counterparts served by Johannesburg’s City Power.

George says Salga has been trying to come to an agreement with Eskom since 2013.

Eskom however maintains that electricity reticulation is a concurrent function and it is doing nothing wrong.

Salga earlier declared an intergovernmental dispute and an interministerial task team was appointed to deal with the matter, but to no avail.

Looking for clarity

That is why it is now seeking clarity from the court, and to be allowed the surcharges and to effect disconnections through Eskom.

Apart from Eskom, Salga cited as respondents the ministers of mineral resources and energy; cooperative governance and traditional affairs; and public enterprises; as well as energy regulator Nersa and seven private distributors, including Sasol, AECI and South African National Parks.

AECI and two other private distributors, Damplaas Kragbron, which distributes electricity to some rural areas around Petrus Steyn in the Free State, and Vleesbaai Dienste, are also opposing the application.

Read: Private sector to invest another R50bn in renewables

The Association of South African Chambers (Asac) says “it is clear that their [municipalities’] sole target is to extract additional income from the productive sector in areas where they currently do not distribute.

“From this perspective, their target is to further plunder in areas where they are not in control nor able to do so.”

Asac says in a perfect world “where municipalities are competent and/or not run by crooks and thieves, Salga’s proposals might be acceptable and provide for a uniform base for tariffs and service delivery across South Africa”.

Read:

“It is common knowledge that mismanagement at the majority of municipalities form a serious threat. Municipalities burden business with poor delivery, expect them to pay for substantial inefficiencies and target to extract further taxation from the productive sector.

“Many of Salga’s members manage reticulation border to border and most of these members do a very poor job. Many of them have become financially unsustainable.

“In this environment, Salga’s application tastes very sour and Salga’s stance forms a serious threat to the economic development of South Africa,” adds Asac.

Christo van der Rheede, CEO of AgriSA, says farmers are already battling sharp increases in their input costs. Further increases in electricity cost will set them on a track towards bankruptcy.

“This is just another opportunity to loot,” he says.

Professor Bernard Bekink from the Department of Public Law at the University of Pretoria agrees with Eskom that the functions are concurrent and says organs of state should work together to provide services to communities.

COMMENTS   23

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I suppose this is to make way for off grid solar users to also have to pay the municipalities this surcharge for the electricity they produce for their own private use!

I am sure tghis will eveolve over time — they need to feed the looters in charge

If you have a nice setup of solar panels and battery packs then the municipality will most likely not really care until another twenty years later, unless if you have a solar panel, battery, technology phobic neighbor.

Plus they will care even less if it is in your back yard and not visible from the street.

Councils should not be allowed to make any profit on electricity sales, just cover costs, yet the ANC have pushed the enormous costs and burden of non payment or theft of electricity onto the few and using the utility as a profit generator.

This is not sustainable.

Fancy getting paid for nothing

ANC members get this perk every day they lounge around in the luxury of Parliament.

Aaah, SALGA – that centre of excellence representing the very best that local government planning, foresight, honesty, efficiency and value-for-money in an ANC universe has to offer.
Root canal work without anaesthesia would be more enjoyable than listening to their “reasoning”.

It’s like taxing people for the oxygen they breathe..

The ANC government turned municipalities into vehicles of extortion. The legal framework allows, and even motivates the appointment of unqualified and incompetent managers and workers for political purposes. The act enables municipalities to extract the value of capital investments of property owners with the redistributive rates and taxes regime.

This implies that the value of your house, shopping center, or office building is transferred to municipal workers in the form of salaries, and to shack dwellers in the form of free services. The populist motives remove all restraints or limits on the tempo at which they are allowed to expropriate. If they cannot escalate the value of the building any further, or raise the rate at which they tax it, they will simply bill you for any amount they want, and cut your services if you don’t pay up.

The property owner receives no value for money. The capital appreciation of the house disappears into the stomachs of municipal employees and shack dwellers. This consumption of productive capital will inevitably lead to the degradation of the private assets in that municipality. It is only a matter of time before this structure leads to the implosion of the municipality itself.

There are thousands of “equitable share” households in every municipality. The law takes the property of some people to redistribute it among others to whom it does not belong. The ANC political elite is very benevolent with other people’s money, never their own. This arrangement of legalised plunder creates a steady stream of cash to reward the looting by tenderpreneurs and municipal councillors.

Municipalities are bankrupt for the same reasons the USSR went bankrupt. Service delivery is imploding for the same reason Chernobil imploded. Eventually, this exploitative structure will crumble like the Berlin Wall.

Again, you are 100% correct but I think we should extend the argument to the whole taxation system in South Africa. Whether it is municipal rates and taxes, whether it is the plethora of taxes on fuel, or the whole, corrupt e-toll system, and whether it is SARS, the public will pay and pay and pay. People like Thomas Piketty cannot accept the frailty of human morality so their mantra is redistribution – which in South Africa is theoretically (perhaps) an aim of onerous taxation. Instead, our taxes are siphoned off into hundreds of Nkandlas, and luxury vehicles whilst our services, our ROI, are declining and often non-existent. The initiative mooted here is simply another effort to scrape and already empty barrel.

I agree. Socialism, and everything the ignorant and naive Piketty stands for, is an illusion. Research by social anthropologists has proven that it is impossible to improve the position of a poor person by giving him money. Besides the fact that the process corrupts that individual with bad incentives, it actually worsens his eventual position.

The small percentage of lotto winners who still were in a better material position 3 years after they have won the millions are those individuals who were wealthy, to begin with. They saved the winnings because they were psychologically equipped to handle money.

This proves the point that the material position the individual finds himself in is merely a monetary expression of his mindset. It is impossible to improve a person’s mindset by giving him money.

Anything beyond an affordable social grant is a counterproductive waste.
Piketty is a prophet who paves the road to hell.

Want to kill people?? Go this way. These clowns cannot even run a garbage collection service, now they will allow bare wires all over the show so that all can get free power.

Kids will be electrocuted daily, until the infrastructure falls apart then darkness.

Hopefully the courts will realise just how much these cadres are actually capable of….not very much.

Try taxing my solar system??? what will you cut off? The sun?

proven once again: the municipalities wants to earn income from a service which they simply did not and in many cases have not delivered at all – they are so use to do nothing and then is monthly paid for rates and taxes

electricity is one of those salable items, that if you do not have it available when the demand is there, the once salable portion / income generating portion of it is lost forever – on top of it: how much of the “sold” electricity is actually given away / allowed to be tapped by illegal connections / sold at lower tariffs in certain areas etc etc

to the current incompetent and 100% useless municipalities: you have worked / mismanaged yourself out of the sale of electricity, too late to cry crocodile tears over spilled beans while you, as a municipality entity, is self responsible for the situation that you mismanaged yourself into, in the near future the private sector will show you once again how it is done in the real world. “competition” means “enemy” for any current government entity

Municipalities should not be allowed anywhere near the distribution or billing or power to consumers. The ideal situation is that everyone pays Eskom directly and once the bills are settled, municipalities get a small percentage of the takings. Nothing more.

Of course SA is not the land of ideal situations.

Agree then Eskom can switch off the non payers……

Step 1 to turning a Service into a Tax.

Salga’s proposal in the midst of municipal mismanagement and incompetence is absurd. A large majority of residents residents are not happy with service delivery. The economic impact of a a further hike on electricity will be unbearable on residents that are paying for electricity. It is obvious that businesses will be forced to pass the cost to consumers.

The municipalities have a tiny claim to a surcharge where they own and administer the distribution system. That is all. But what a bizarre situation where entities prefer to get power from Eskom, riddled with uselessness and corruption rather than municipalities which are even more useless. The mind boggles.

But possibly a watershed judgement as, theoretically, it could open the way to entities buying power from whoever they choose. Don’t think it will happen though, Eskom, NERSA and the municipalities will cling onto their monopolies like the parasitic ticks they are.

It would be nice if the courts came up with something better, taking into account the interests of users (including employment-creating businesses) and that SALGA has Parks Tau, who fouled up Jhb billing and city and the mess Eskom has made of its monopoly.

The optimum solution would be to privatise electricity generation and distribution and to encourage the purchase of electricity from businesses and households with own (wind, solar, etc) generation or storage.

Paying councils a margin on energy they do not distribute over assets they do not own or maintain is just plain daft.

BUT Prediction : when Eskom unbundles it will end up with Generation, Transmission and only very large end user Distribution.

It does not really make sense for Eskom to service areas surrounded by metros.

It is probably time we get normalized national tariffs or at least one set of clear rules on for example solar connected.

If the municipalities do not own the distribution system then they don’t deserve a surcharge.
I* wanted to say ‘Maintain’, but then it also cuts out Eskom.

Looking for more money to steal or fill the hole caused by previous theft? Tariff’s on electricity in my area, distributed by the municipality, are amongst the highest in the world. More reason not to invest in SA as the syphoning of more and more money to fund inefficient municipalities drains any enterprise.

SALGA is the municipal mafia.

End of comments.

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