Municipality collected 90% of electricity bills but failed to pay Eskom

Emfuleni owes Eskom R3.5-billion and must now hand over its electricity business to the power utility, Pretoria High Court orders

By Tania Broughton

6 July 2023

The Pretoria High Court has ordered that Eskom take over the electricity business of Emfuleni Municipality. Photo: Brian Turner via Flickr (CC BY 2.0)

Eskom will take over the electricity business of Emfuleni Municipality with consumers paying the power utility directly in terms of an “agency agreement”.

This is the upshot of a court ruling handed down this week which revealed that the municipality, which owes Eskom about R3.5-billion, is in a “state of disaster”.

Pretoria High Court Judges Selby Baqwa, Gcina Malindi and acting Judge Irene de Vos said that while Emfuleni had collected R4.5-billion from electricity consumers (a collection rate of about 90%), mismanagement, maladministration and a failure to keep the electricity business separate from its other affairs had resulted in “ballooning debt”.

“Not only is the debt gigantic in scale but it is also dynamic. It grows with every month … Its payments due to Eskom is hundreds of millions of rands every month.

“The scale of the debt has given rise to a state of disaster so grand … the court finds that Emfuleni has to yet realistically confront the state of disaster it has created,” the judges said.

The court said the case involved more than money; it threatened Eskom’s ability to provide electricity to the rest of the country. Emfuleni claimed that it “lacked capacity to switch off the power” during load shedding, which Eskom said could result in the collapse of the national grid and a national black-out.

Read the judgment here

This was not the first time the dispute has come before a court.

In 2018, another court heard an urgent matter brought by several large corporate power users, to interdict Eskom from shutting off the electricity during certain hours as a result of the debt, which at the time stood at R1-billion.

The judges, in that matter, ruled that the municipality had failed to comply with its statutory duties. It was not paying over to Eskom the “Eskom margin” it charged consumers but was using the money to fund its other operations.

The court granted the interdict and ordered the municipality to issue invoices to the companies specifying the Eskom tariff separately in order to facilitate direct payments.

But the municipality did not comply with the order. Its appeal to the Supreme Court of Appeal failed.

In the meantime, Emfuleni’s electricity debt “spiralled out of control”.

By 2021, it stood at R3.5-billion. This was in spite of 90% of electricity users paying their bills.

Eskom, in its submissions to the court, said it had to borrow money and ask the government for cash bailouts because of the crisis in the municipality.

It said this was unsustainable and could plunge it into a financial crisis “too ghastly to contemplate”.

Eskom’s court action was supported by several electricity users “in their quest to avoid being left without electricity, which would impact their business operations and lead to loss of jobs”.

The National Energy Regulator of South Africa (NERSA) was fully aware of the crisis but had done nothing, the judges said. While it had the power to enforce the municipality’s licence provisions (which included running the electricity business separately), NERSA had either intentionally refused to do so or had simply failed to act.

“There is no dispute that Emfuleni owes Eskom. The real challenge in this case is the astronomical scale of the debt.”

“The municipality concedes that it does not have billions to repay its historic debt. It also concedes that it has been besieged by a lack of financial discipline and maladministration.”

The judges said Eskom had taken every conceivable step to resolve the problem before approaching the court. It had sought governmental intervention at every level. It had obtained money judgments. It had negotiated and renegotiated with the municipality. It had turned to NERSA, which had acknowledged that it had failed as a regulator.

The court declared the municipality and the municipal manager to be in contempt of the 2018 court order, and said their failure to pay Eskom was unlawful and unconstitutional.

They ordered that Eskom take over the electricity business from the municipality in terms of an “agency” agreement still to be reached. The agreement would allow Eskom to collect all revenue and pay back the municipality its percentage markup.

Should the “agency agreement” not be finalised within six months, Eskom and the municipality must file a report to the court setting out the reasons why.

Pending the finalisation of the agreement, the electricity customers who joined the proceedings in both the 2018 and the current case, can make payments directly to Eskom, at its tariff, and provide proof of this to the municipality. They must, however, continue to pay the difference between the Eskom tariff and the municipal tariff to the municipality.