The National Treasury’s offices in Pretoria. (Photo: PSAM)
The national treasury has pledged its support to Eskom’s plan to temporarily take over as agent struggling municipalities that collectively owe it billions for bulk purchases’ power distribution. However, the treasury believes that the first two agreements favor Eskom at the expense of these municipalities.
Treasury officials told Maroela Media that the contracts, known as distribution agency agreements, should be more balanced and standardized. The officials say the treasury is in discussion with Eskom, the municipal association Salga, and the departments of energy and electricity and cooperative government.
They also point to strict legal requirements that these agreements must meet. This includes, among other things, a feasibility study that must precede the agreement.
Distribution agency agreements are presented in the budget review as one of the major interventions to fix struggling municipalities.
The Treasury admits that its debt relief program has had limited success. According to this, municipalities that regularly pay their current power bill to Eskom and meet other strict conditions can shed their old Eskom debt over a period of three years. Municipalities that participate in this program are exempted from Eskom’s credit control and legal proceedings against them.
A total of 71 municipalities, which together have a historical Eskom debt of R85 billion, are part of this programme. However, only 15 of them meet the conditions. To protect the national power grid and the viability of municipalities, the government will now introduce distribution agency agreements where Eskom takes over power distribution from a municipality whose Eskom payments are in arrears. However, the municipality retains its power distribution licence.
Still municipalities approached
According to Duncan Pieterse, director general of the national treasury, letters have already been sent to 15 of the 71 municipalities to encourage them to enter into distribution agency agreements with Eskom.
By doing so, they want to ensure that revenue is collected, current bills are paid and the reliability of power supply is restored.
“Municipalities that refuse these conditions will be removed from the debt relief program and will be liable for the full arrears,” says the treasury.
Maroela Media previously reported that such agreements are in force in Maluti-a-Phufong (Harrismith in the Free State) and Emfuleni (Vanderbijlpark in Gauteng). In both of these cases, the agreements are the result of a court order.
Eskom announced in December that it had also signed a distribution agency agreement with Merafong (Carletonville in Gauteng). This is the first where a municipality has agreed to this of its own accord.
However, the Treasury is unaware of the Merafong agreement.
Maroela Media has studied all three of the distribution agency agreements that have been concluded so far. According to that, Eskom will, among other things, repair the infrastructure and the income from power sales will be paid directly into Eskom’s bank account. Eskom then keeps this money aside and pays the cost of its service to the municipality, which includes a handling or administration fee, plus the arrears from it.
A sequence has been determined according to which Eskom must use the money and the municipality will only see any of the money if there is anything left.
The treasury has confirmed that there is no new money available to repair the municipal infrastructure. The relevant municipality will have to pay the bill for this and also pay for Eskom’s fee.
In many cases, however, the municipalities’ power tariffs are currently too low to cover all its costs. This must also be corrected.
The treasury is pinning its hopes on the installation of smart meters to increase the municipalities’ income so that the costs in terms of the distribution agency agreement can be covered.
In the budget provision has been made for R2.5 billion over the next three years to install smart meters in municipalities. There are already 139,000 installed in the 71 municipalities that are part of the debt relief program. Over the next three years, another 96,400 will follow.
“In addition to more accurate accounts, the system provides real-time data to identify leaks and illegal connections. This speaks directly to lost revenue. Municipalities will have to demonstrate that they have improved their collection rate before they will qualify for government grants from now on,” says the budget overview.
Further steps to straighten out municipalities include amendments to the Municipal Financial Management Act that will force councils to draw up budgets that are properly funded, exercise tighter control over expenditure, take action in case of maladministration and provide clarity on the handling of irregular spending.
“The bill will strengthen mechanisms for review and intervention by the national and provincial treasuries, including more effective recovery measures and clearer checks and balances during interventions,” says the treasury.
The treasury will also henceforth stop the payment of government grants to municipalities that persist in acting outside the framework of the law.
Enoch Gondongwana, the finance minister, gave the assurance during a news conference before his budget speech that the national government will intervene in the crisis in the Johannesburg metro.
“There is no doubt that Johannesburg is a problem. The national government cannot sit aside and watch. We will go there,” he said.
Talks are apparently already underway between the city administration and the national treasury, but the legal basis and details of the intervention have yet to be worked out.
