Stock Photo (Photo: Shutterstock)
Eskom has been told to rewrite the Distribution Agency Agreements (DAAs) it is trying to enforce on 13 municipalities because the current version is considered one-sided and in Eskom’s favour.
Such agreements authorize Eskom to take over the electricity distribution in the relevant municipality for several years. This includes the maintenance and operation of the municipal network, management of power losses, price and tariff structures, invoicing, revenue management and collections. However, the municipality retains its license to distribute power.
So far, Eskom has signed DAAs with Maluti-a-Phofung (Harrismith) and Emfuleni (Vanderbijlpark) after court orders forced the municipalities to agree. Eskom also announced in December that it had entered into a DAA with the Merafong municipality (Carletonville), but in this case the parties agreed on their own.
Eskom recently started a public participation process which is legally required before it can disconnect the electricity supply to the 13 municipalities as well as the Ekurhuleni metro due to non-payment. This comes after municipal debt to the utility company exceeded R110 billion and threatens Eskom’s sustainability.
Since then, Eskom has received R1.7 billion and made a payment arrangement with Ekurhuleni that will ensure the metro’s lights stay on.
For the 13 smaller municipalities, Eskom gave three options to avoid disconnection.
They can enter into a DAA, switch to prepaid power and only get what they have money for, or consumers can pay Eskom directly at the Eskom tariff.
Also read: Eskom warned of legal action if it cuts power
Municipalities have less than a month to indicate whether they will choose one of the three options, or be disconnected. In the case of the Nala municipality in Bothaville, for example, the council only has until 27 March to submit a council resolution to enter into a DAA.
It will be almost impossible for the municipalities concerned to meet the legal requirements for a DAA within such a short time frame. This requires, among other things, a feasibility study and public participation. They can therefore take the risk of anticipating the outcome if they make such a council decision.
In the meantime, there is still uncertainty about the conditions that municipalities will be faced with if they choose a DAA, as well as what exactly the third option entails.
Maroela Media reported earlier that a task force – consisting of Eskom, the national treasury, the departments of energy and electricity and its counterpart at cooperative government and traditional affairs (Cogta), as well as the South African Local Government Association (Salga) – is deliberating on the DAA solution to Eskom’s municipal debt problem.
The Treasury has now confirmed to Maroela Media that the other stakeholders want substantial changes to the standard DAA agreement. When asked, the treasury said: “The DAA that Eskom proposed favors Eskom and must be balanced…”
This is now Eskom’s move.
“At this stage, Eskom’s legal services must provide an updated DAA that includes the input, with a list of any issues that have not been included to enable further engagement between stakeholders, until a solution is reached,” the national treasury said.
Stock photo (Photo: Shutterstock)
According to the treasury, some of the matters that Eskom should incorporate include:
- Compliance with the conditions of the national treasury’s municipal debt relief programme
- The possibility of consolidated municipal invoicing to use electricity (and in Eskom supply areas water) as credit control and collection tools
- Standards for the service that Eskom provides, including the national treasury for requirements for the collection of electricity revenue
- Ensuring free basic electricity (FBE) in Eskom and municipal distribution areas
- Contractual obligations for municipalities to remit the FBE grants they receive from the government to Eskom at least quarterly to protect the energy supply to poorer households
- A write-off of municipal debt where a municipality substantially complies with the DAA
It appears that Eskom’s right to a service fee is not contested, but it is unclear how much it will be and whether it will be added to power tariffs.
Currently, it is set at 10% in two of the three existing DAAs and at 4% in the others. No details were given on how this would be calculated.
Salga was strongly opposed to collected revenue being paid into Eskom’s bank account rather than into that of the municipality.
Nhlanhla Ngidi, Salga’s portfolio head for energy and electricity, recently told Maroela Media: “The agreement is that a municipality will open a separate account into which the money paid by consumers for power supply is deposited, after which payouts will be agreed upon at the end of each month.”
However, the national treasury said: “In terms of the proposed DAA, Eskom will operate the municipal function, including the collection of revenue on behalf of the municipality.”
They explain that, after the amount allocated to Eskom has been allocated, Eskom will pay the remaining amount into the municipality’s main bank account. “It complies with the legal framework,” said the national treasury.
Meanwhile, the energy regulator Nersa is nowhere to be seen, despite its statutory supervisory role over licensees, including municipal electricity distributors and Eskom.
When asked, Charles Hlebela, Nersa’s head of communications, told Maroela Media: “Nersa is aware of the distribution agency agreements between Eskom and the Maluti-a-Phofung, Emfuleni and Merafong municipalities. However, these agreements have not been submitted to Nersa for approval.”
And further: “Since Nersa is not aware of these agreements and they have not been submitted for approval, no supervisory steps have been taken regarding their implementation in Maluti-a-Phofung, Emfuleni or Merafong.
“Without the agreements being submitted to Nersa, we cannot confirm whether municipalities will be able to recover administration or handling fees from the tariff, or whether these fees will be considered effective costs in terms of the Electricity Regulation Act (ERA).”
- Maroela Media approached Agnes Mlambo, Eskom’s head of distribution, for an interview to gain further clarity on Eskom’s position on the DAAs. Feedback will be updated.
