Eskom gets tough with errant municipalities, grabs cash and land

As it scrambles to recover R31bn in municipal back bills – raising interesting questions about the land issue in the process.
If a single municipality has 139 farms, it seems certain that the state has a surfeit of land for distribution to the poor. Image: Waldo Swiegers, Bloomberg

Eskom recently attached 139 farms worth R2.5 billion from Matjhabeng municipality in the Free State, signalling a new front in the war with delinquent municipalities.

The electricity utility has been known to attach cars, computers and bank accounts in settlement of municipal arrears, but attaching farms as security for debts owed is something new.

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As of July 31, municipalities owed Eskom R31 billion, with 80% of this owed by just 20 municipalities.

Asked what prompted the attachment of these farms, Eskom replied: “To collect this debt, Eskom is implementing the contractual conditions as per the supply agreement such as interrupting supply, pursuing legal avenues consistent with good credit management processes. So far, these 139 farms are the only property of this nature that Eskom is holding as security to cover unpaid debt.”

Farms valued at an average of R18m each

The farms were attached as security for Matjhabeng municipality’s R3.4 billion debt. The municipality values the farms at R2.5 billion, or R18 million each on average (bear in mind this is gold mining country, and includes the town of Welkom).

That should raise eyebrows for all sorts of reasons, and it has.

If just one bombed-out municipality has 139 farms it can hand over as security for a debt, how many such municipal farms are there scattered across the country?

That’s a question Leon Louw, executive director of the Free Market Foundation, wants answered: “What on earth is a municipality doing with 139 farms to give Eskom for debt security? That [Matjhabeng] has farms at all, let alone 139 farms, should generate a political and media outrage, yet the scandal went unnoticed.”

Expropriation without compensation pressures

Louw’s outrage is directed at the pressure to implement expropriation without compensation (EWC) on the pretext that the willing buyer/willing seller model has failed and more radical land redistribution is needed. “It appears that municipalities are sitting on vast tracts of superfluous land.

“If the Matjhabeng municipality’s 139 farms are indicative of the rest of the country, the government has ample land for redistribution.”

Moneyweb reported on Sunday (October 4) that government is about to auction off almost 900 vacant or underutilised state-owned farms across the country, a move aimed at helping those discriminated against during apartheid.

It begins to appear as if there is far more state-owned land available for redistribution than has hitherto been admitted.

Eskom says the Matjhabeng farms remain the property of the municipality until the dispute has been resolved in an outstanding court case.

Eskom – like municipalities – is under huge pressure to gather every cent owed to it and rein in ballooning arrears bills.

It explains the motivation for the land attachments: “Over the years Eskom has done everything within the company’s legal constraints to recoup unpaid debts from municipalities. In addition to pursuing the legal route with individual municipalities, such as the recent action against the Matjhabeng and Maluti-a-Phofung municipalities, Eskom is actively engaging stakeholders such as the National Treasury, SA Local Government Association and the Department of Cooperative Governance and Traditional Affairs (CoGTA) to improve the payments by municipalities.

Eskom’s priority

“Our priority is to ensure that municipalities are in a position to settle their current accounts timeously. Working with National Treasury, we are ensuring municipalities adopt funded budgets that include the payments to Eskom.

“Eskom has over the years implemented many concessions such as reduced interest rates and increased payment days to make it easier for municipalities to settle their accounts.”

Earlier this year Eskom attached the cash accounts of another Free State municipality, Maluti-a-Phofung (which includes the town of Harrismith), which had run up arrears of R5.3 billion after defaulting on its electricity bill. By order of court, Eskom released R90 million of the municipality’s seized cash, sufficient to pay workers.

Also earlier this year, it attached furniture, cars and other equipment in settlement of a R2.3 billion arrears bill owed by Emfuleni municipality, south of Johannesburg. This followed a 2018 court order interdicting Eskom from cutting electricity supply to the municipality as this would prejudice customers who faithfully paid their bills.

Large businesses in the area, such as ArcelorMittal and Growthpoint, have lobbied to keep the lights on by paying Eskom directly, rather than repurchase power from the hopelessly insolvent municipality.

Read:

Residents of municipalities such as Govan Mbeki in Mpumalanga complain that they are being cut off by the municipality for up to eight hours a day, even though they are dutifully paying their bills. It’s the same complaint heard in many other parts of the country.

Eskom says it does not intend to punish paying customers but has no other option than to cut services to the defaulting municipality, which is mandated by the Public Finance Management Act and the Electricity Regulation Act.

“Interrupting of supply is a condition within the supply agreement Eskom has with its customers and is based on sound commercial law practice whereby a service is discontinued when non-payment for such service occurs,” says Eskom in reply to questions from Moneyweb.

Soweto residents ‘punished’

Residents of Soweto, which owes Eskom close to R18 billion, say they are punished when entire areas are disconnected, regardless of whether the individual customers have paid their bills.

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, disputes the R18 billion arrears figure and wants it subject to independent audit. Power disconnections have led to social protests and vandalism of Eskom infrastructure in Soweto.

Sibiya wants an independent tribunal established to hear the individual merits of each complaint before deciding to disconnect power from people who are often living in desperate circumstances.

Eskom replies that all its tariffs are regulated by the National Energy Regulator, and it has no leeway to negotiate separate tariffs or have preferential arrangements outside of what is regulated. Relief is available through the so-called Inclining Block Tariff (IBT), which is a form of subsidy to low-consumption residential customers. Government also assists indigent households by providing Free Basic Electricity (FBE), a scheme that is administered by municipalities.

All users must pay

“In order to enable Eskom to sustainably and reliably supply electricity to the country, all consumers of electricity must pay for their consumption. Non-payment of electricity does not only affect the security of supply for paying customers, but it also contributes to increased energy and revenue losses coupled with increased operational costs,” says Eskom.

Eskom the best bet for an accurate land inventory?

If Eskom starts going after municipal-owned farms as it has just done in Matjhabeng, we may end up with a far more detailed inventory of state-owned land than has hitherto been the case.

If Matjhabeng has 139 farms, it seems certain that the state is squatting on a surfeit of land for distribution to the poor.

The supposed scarcity of land may be entirely manufactured by those with political ambitions.

Eskom may end up as a major landowner if more municipalities default, which may take some of the steam out of the push for EWC, which is far from a top priority for ordinary South Africans.

Says Louw: “Various ‘land audits’ supposedly document how much land is private, government, traditional, white, black or undefined. But they are all nonsense. Their common bizarre flaw is that they estimate land distribution by the most irrelevant criterion, area. ‘Whites own 80% of the land’ is an absurd popular refrain.

“Land by area implies that a hectare of desert is as valuable as a hectare of Clifton.”

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The combination of intellectual capacity, accountability and frugality attract property. The combination of below-average cognitive ability, unaccountability and an extravagant lifestyle repels property. This basic formula is valid across all nations and demographic groups.

Some groups, like the Jews after the Holocaust, the Indians who arrived as slaves in Natal, the Boers after the scorched-earth policy of the Queen, recovered from their position of abject poverty to be very successful property owners. On the other hand, we see how fast all winners of the lotto lose their millions, how strongly their mindset repels property, and how they end up in poverty once again.

After all the shouting and rioting have died down, the fact emerges that property ownership merely reflects cognitive ability. Property ownership is simply the manifestation of the mindset of the individual.

This phenomenon plays out on a personal level, municipal level, as well as on a national level. People with a certain mindset vote for the DA. DA municipalities are functional and attract businesses to employ people. This has a positive influence on the value of the residential property. Those who don’t understand the concept of property rights vote for the ANC. ANC municipalities fall apart due to infringements of property rights. Business owners migrate towards and create jobs, in DA municipalities. Property values in ANC municipalities are in a declining spiral. The ANC mindset repels property.

South Africa had a negative savings rate for the past decade. Four thousand high-net-worth property owners have emigrated to push down property values locally and to support property values in Malta and Australia. The Debt/GDP ratio and the Budget deficits are breaking new records daily. It is clear, that even on a national level, the value of capital and property merely reflects the mindset of the individual as expressed at the ballot.

The wealth of the nation, the ability to raise taxes and to afford social projects, is rooted in property ownership. Property ownership is rooted in cognitive ability and frugality. Now we understand why Switzerland is wealthy and why Zimbabwe is poor, why some local municipalities are losing their property while others are attracting it. It is not the government who is to blame. It is the individual.

Eskom will shortly be the biggest land owner in SA.

How does that pay for the Medupis of this world?

the land may be worth what ever billions on paper but we all know that post Covid there is going to be a big reset on the value of property. It has started already with rightoffs on balance sheets, just the municipalities are too stupid to see that their recently hiked property values are just going to accelerate defaulters.

Eksdom needs money not land, cars, etc.

Exactly.

Indeed. The assets of Eskom & the municipalities are in fact owned by the State which in the end is the sum of taxpaying citizens. Playing musical chairs with taxpayer money while limiting benefits to honest taxpayers / citizens.

Municipal land is owned by the municipality and by definition, the ratepayers and residents comprise the municipality, so they own it.

Wondering if the ratepayers and residents were consulted before encumbering their assets and interests?

If Municipalities owe Eskom money & as the article informs has attached farms, cars & other goodies. The municipality then speaks to treasury to arrange a loan to negotiate payment terms….In the interim Eskom releases funds to pay worker salaries of distressed municipalities yet all are subsidiaries of Gov which is ultimately controlled by the ANC…

I ask in fact implore that stories like this please stop trying to convey the message that there’s a conflict of interest between 2 entities when there is a common denominator running through every link….
Ladies & Gentlemen may I introduce to you “the deployed ANC cadre”

get rid of youre excessive workforce!!!

…..just in, “eskom to close down next week with a loss of 20,000 jobs and 100,000 employees”……

Until Muncipal debt is handed over to SARS for collection you don’t stand a chance of collecting. You can repossess all the land you want it won’t make the slightest difference. It to slow and all probability will only cover a fraction of the debt ……if you can find a buyer of course !

End of comments.

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