<\/p>\n
The South African Local Government Association (Salga) has asked National Treasury for six months\u2019 grace for 14 defaulting municipalities that must sign agreements appointing Eskom as their agent to manage their electricity operations before 1 September.<\/p>\n
This comes as municipal arrear debt to Eskom has increased to R119 billion, according to a recent statement by the utility.<\/p>\n
Such agreements, referred to as Distribution Agency Agreements (DAAs), were first proposed by Eskom as a measure to arrest the rapidly increasing arrear debt of municipalities to the utility.<\/p>\n
Backed by National Treasury, they are widely seen as a solution for communities experiencing frequent power outages in dysfunctional municipalities.<\/p>\n
Treasury\u2019s DAA push<\/p>\n
So far, only three agreements have been concluded \u2013 and with little evidence of success. Nevertheless, National Treasury wants to increase the number of municipalities with DAAs to 30.<\/p>\n
Read:<\/p>\n
Sputla\u2019s flagship municipal power project falters
\nTreasury \u2018advises\u2019 15 municipalities to let Eskom take over
\nEskom municipal takeover may expand to 30 municipalities<\/p>\n
If the 14 municipalities fail to meet the deadline, they will be removed from National Treasury\u2019s debt relief programme.<\/p>\n
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In such a case, the following may happen:<\/p>\n
Eskom may resume credit control measures, including attaching the municipality\u2019s main bank account;
\nEskom may charge interest at the prime lending rate plus 2.5% on all new debt;
\nThe municipality may lose access to new National Treasury funding for the installation of smart meters;
\nNational Treasury may withhold funding from the municipality; and
\nNational Treasury may withdraw all other support to the municipality.<\/p>\n
National Treasury has been critical of the content of the three existing agreements, saying they are skewed in favour of Eskom.<\/p>\n
Eskom, however, indicated to Moneyweb that the current agreement is the only version available to the identified municipalities.<\/p>\n
Read:<\/p>\n
Eskom defiantly sticks to current municipal DAA
\nEskom sent to redraft \u2018one-sided\u2019 municipal distribution agreements<\/p>\n
A task team \u2013 comprising Eskom, National Treasury, the Department of Cooperative Governance and Traditional Affairs (Cogta), the Department of Electricity and Energy, and Salga \u2013 has so far been unable to agree on amendments.<\/p>\n
Salga\u2019s legal opinion\u00a0<\/p>\n
Salga says it has obtained a legal opinion on the matter and now wants the parties to use that as a basis for the amendments.<\/p>\n
Zamo Gwala, chief officer for municipal finance and fiscal policy at Salga, says the legal opinion confirms the association\u2019s view that municipalities must follow the process prescribed in Section 78 of the Municipal Systems Act for a DAA to be lawful.<\/p>\n
This was not done before Eskom concluded a DAA with the Merafong Local Municipality, based in Carletonville, forming the basis of a legal challenge brought by AfriForum.<\/p>\n
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The other two DAAs \u2013 in Maluti-a-Phofung Local Municipality, based in Harrismith, and Emfuleni Local Municipality, based in Vanderbijlpark \u2013 are the result of court orders.<\/p>\n
Read:<\/p>\n
Eskom\u2019s municipal agency agreement heads to court
\nMany a slip between municipal cup and Eskom lip?
\nSalga red-flags Eskom\u2019s \u2018backdoor takeover\u2019 of municipal distribution<\/p>\n
The Section 78 process includes a study to assess whether the service should be provided internally or through an external mechanism, considering cost, capacity, service quality, risk, and sustainability.<\/p>\n
It also requires consultation with local communities, organised labour and other interested parties.<\/p>\n
If an external delivery mechanism is proposed, a detailed feasibility study must be conducted, covering financial, technical, legal and institutional considerations.<\/p>\n
If an external mechanism is selected, the municipality must follow a procurement process during which Eskom, should it decide to throw its hat in the ring, will have to compete against other bidders.<\/p>\n
Salga argues that it will be impossible for the affected municipalities to complete this process before 1 September, and has therefore called for a six-month extension.<\/p>\n
According to Gwala, the legal opinion also finds that the current DAA requirement for all revenue from municipal electricity sales to be paid into Eskom\u2019s bank account, instead of the municipality\u2019s, is unlawful.<\/p>\n
The legal opinion also states that municipal unions must be consulted.<\/p>\n
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It further raises questions about what guarantees municipalities will have regarding the condition of electricity infrastructure when Eskom hands it back at the end of the contract period, and what recourse will be available if Eskom fails to collect the revenue.<\/p>\n
Court backs due process<\/p>\n
Dr Beyers Naud\u00e8 Local Municipality, based in Graaff-Reinet, won a court interdict in June to stop Eskom from cutting electricity supply to three towns after the municipality failed to meet a National Treasury deadline to adopt a council resolution in support of a DAA.<\/p>\n
The municipality argued, among other things, that it had not seen the draft DAA and was therefore unable to consider it.<\/p>\n
Eskom told the court it \u201chad not been disclosed because [it] remained subject to negotiation\u201d.<\/p>\n
Read:<\/p>\n
Court halts Eskom\u2019s cut-off or take-over ultimatum
\nEskom switch-off: These are the municipalities at risk<\/p>\n
The court found that Eskom \u201cappears to have dismissed, or merely paid lip service to\u201d, the extensive requirements set out in the Municipal Systems Act and the Electricity Regulation Act relating to the DAA.<\/p>\n
It further ruled that \u201cas a distinct sphere of government\u201d, the municipality was \u201centitled \u2013 if not statutorily obliged \u2013 to seek legal advice and follow the legally prescribed procedure before reaching a decision on the possible conclusion of a DAA\u201d.<\/p>\n
#Salga #brakes #Eskoms #municipal #takeover<\/p>\n","protected":false},"excerpt":{"rendered":"
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