KEY POINTS
- 14 municipalities face possible Eskom power cuts if they fail to conclude Distribution Agency Agreements by September 1.
- Municipalities collectively owe Eskom about R119 billion, putting further pressure on the utility’s finances.
- Salga wants the deadline extended by six months, while legal and political concerns continue over Eskom’s proposed takeover of municipal electricity distribution.
Fourteen municipalities across South Africa are facing the possibility of electricity supply interruptions after failing to conclude Distribution Agency Agreements (DAAs) with Eskom ahead of a September 1 deadline.
The municipalities were given until Tuesday to complete the agreements or risk having their electricity supplies disrupted as Eskom intensifies efforts to recover billions of rand in outstanding municipal electricity debt.
According to National Treasury, none of the 14 municipalities that remain under the deadline had concluded a DAA with Eskom as of the latest update, creating uncertainty over the continuity of electricity supplies to residents and businesses in the affected areas.
The dispute centres on the growing debt owed by municipalities to Eskom, South Africa’s state-owned electricity utility.
Municipalities collectively owe Eskom about R119 billion, a debt National Treasury and the utility regard as a major threat to Eskom’s financial sustainability.
In response, Eskom has been pursuing several mechanisms to ensure that municipalities meet their electricity payment obligations. One of these is the Distribution Agency Agreement, under which Eskom temporarily takes over the municipality’s electricity distribution function.
Under the arrangement, Eskom acts as the municipality’s electricity distribution agent and receives payments directly from consumers.
The utility first deducts the amount owed for bulk electricity supplied to the municipality, as well as its agreed cost of providing the service. The remaining funds are then transferred to the municipality.
The arrangement is intended to prevent municipalities from diverting electricity revenue to other areas while failing to settle their debts with Eskom.
However, the agreements have become highly controversial, with questions raised over their legality and concerns that they could effectively give Eskom greater control over municipal electricity distribution.
Municipalities yet to conclude agreements
National Treasury had previously required affected municipalities to adopt council resolutions indicating their willingness to appoint Eskom as their electricity distribution agent.
They were then expected to follow the legally prescribed procedures required to finalise the agreements by September 1.
Eskom said in May that nine municipalities had adopted the necessary council resolutions. They included Nketoana, Mpofana, Masilonyana, Nala, Ngwathe, Renosterberg, Thembelihle, Govan Mbeki and Kgetlengrivier.
However, adopting a council resolution does not automatically amount to concluding a DAA, meaning several municipalities remain at risk as the deadline approaches.
Some municipalities have also pursued alternative arrangements to avoid electricity supply interruptions.
Ekurhuleni Metropolitan Municipality, for example, reached a payment agreement with Eskom and was subsequently removed from the list of municipalities facing possible supply cuts.
Inxuba Yethemba municipality also agreed to pay Eskom for electricity upfront. Under that arrangement, Eskom supplies only the amount of electricity the municipality can afford to purchase.
These arrangements have allowed the two municipalities to avoid the immediate threat of electricity interruptions. The proposed DAAs have also generated significant legal and political opposition.
Eskom initially relied on a standard agreement that National Treasury described as heavily weighted in favour of the power utility.
A working group comprising Eskom, National Treasury, the South African Local Government Association (Salga), the Department of Electricity and Energy and the Department of Cooperative Governance and Traditional Affairs was subsequently expected to develop a more balanced agreement. However, the revised standard contract has yet to be completed.
Despite this, Eskom recently proceeded to conclude a new DAA with Ditsobotla municipality.
The legality of some existing agreements is also being challenged. AfriForum has launched a court application seeking to have Eskom’s agreement with Merafong municipality set aside, partly on the grounds that the required legal process was allegedly not followed.
