Take a hike, Mr Mayor – Afriforum

21-10-2014
Read : 143 times
Moneyweb
Source

‘Let the private sector take over electricity distribution’. Harrismith feels the crunch.

The only solution to Eskom’s mounting municipal debtor problem, is to have the electricity distribution licensces of the delinquent local authorities revoked and allow private companies to take over on a competitive basis, says Tiaan Esterhuizen, spokesperson of civil rights movement Afriforum.

Afriforum is one of 16 applicants seeking a court order to prevent Eskom from cutting the power supply to three Free State municipalities, due to arrear payments of R736 million in total.

Eskom suspended the planned disconnections to Ngwathe, Maluti-a-Phofung and Dihlabeng municipalities on December 3, after intervention by the Minister of Cooperative Governance and Traditional Affairs Pravin Gordhan and the Minister of Public Enterprises Lynn Brown.

Municipalities, together with Premier of the Free State Ace Magashule were supposed to come up with payment plans by October 17. Eskom spokesperson Andrew Etzinger has confirmed that a temporary court order has been granted to prevent disconnections before December 3, when the utility will be in court to oppose the application for a final court order,

If the final order is granted, it will be of great concern to Eskom. Its municipal debtors currently stand at R3 billion and it has a history of doubling every winter. The utility should be very worried that other municipalities, many which are in dire financial straits, will also default, knowing that they can do so without fear of consequences.

Rating agencies won’t be impressed and another downgrade may send Eskom over the brink.

Esterhuizen says Afriforum is acting on behalf of its members who pay their municipal electricity bills every month and will suffer gross injustice if they are disconnected because their local authority does not pay the money over to Eskom.

He says Afriforum has great sympathy with Eskom and will ask the court to order the municipal managers to submit a payment plan to the court, failing which it will file contempt of court charges. It will also ask the court to compel the municipality to ring fence electricity revenue and pay it over to Eskom.

The problem is that a contempt conviction will still not put money in Eskom’s pocket. A municipality that does not collect its debts also doesn’t have money to pay over to Eskom.

Esterhuizen says that in the long run Afriforum cannot see any other sustainable solution other than the appointment of private sector companies to take over electricity distribution at municipal level. Eskom does not have the capacity to do it.

The maintenance backlog stands at R68 billion and municipalities simply don’t have the money or the capacity to do anything about it.

Next week the High Court in Bloemfontein will hear an application by the company Rural Development that deals exactly with the outsourcing of electricity distribution.

The very same Maluti-a-Phofung municipality, that includes Harrismith and is under threat of disconnection, appointed the company last year to take over the electricity distribution, including billing and collections. According to court documents, Rural invested R100 million in upgrading infrastructure and managed the system for about seven months.

During that period Eskom’s current bill was duly paid every month.

The agreement then went sour, Rural withdrew and the municipality resumed electricity distribution. In court papers the respondents (the municipality and the premier of the Free State), allege that the municipal manager did not have the authority to sign the agreement, that it municipal legislation and supply chain regulations and that Rural has to obtain its own distribution licence. In terms of the agreement Rural would have operated in terms of Maluti’s licence.

Rural will seek a declaratory order to confirm the validity of the contract and assert it.

Harrismith

Harrismith is home to some big industrial power users and businesses, including Nouwens Carpets that has its head office and factory there, Nestlé South Africa’s baby food factory, Boxmore Packaging that produces among other things plastic Coke bottles and Afgri Milling.

Irma Maritz, manager of the Bergview complex in Harrismith, a well-known pitstop on the N3 rout between Gauteng and Durban, says Rural upgraded the transformer and meter at the complex and infrastructure in town.

The complex comprises the Engen filling station and the biggest Wimpy in the country as well as several other shops and restaurants, a conference centre and accommodation.

She says the uncertainty about the town’s power supply is a serious concern to the business community and the owners of the complex that sees 900 vehicles on a quiet night. The complex has a generator but it cannot run day and night. She says it is a deterrent for prospective investors who without fail ask about the power situation when they make enquiries.

John Faul, factory general manager of Nouwens Carpets, says the concern about power supply makes it difficult to decide on expansion and investment.

He agrees that service levels were much better when Rural managed the municipal distribution. The company received advance warning about technical spikes and was able to take steps to prevent damage to equipment. In town all the traffic lights were working for the first time in who knows how long, thanks to Rural’s interventions, he says.

“From a certainty point of view it will be better if the service is outsourced or directly fed from Eskom,” he says.

As matters stand, the municipality has increased tariffs for intensive users like Nouwens by 26-30%. Faul says this makes it extremely difficult for local manufacturers to compete with imports. A comparison has further shown that electricity cost in for example Estcourt or Mosselbay would be about 60% of that in Harrismith.

“The liability of power is huge. One can do little to mitigate it. Generators can run for an hour or two, but they gobble up diesel,” he says.

Getting supply directly from Eskom may not be that easy as the municipality has to approve it. It is hardly likely that it will consent to lose one of its biggest and best paying customers.

Gavin Steiner, technical director for Nestlé South Africa that has its baby food factory in Harrismith says consistent power supply is crucial to be able to compete internationally. This message was also conveyed by Nestlé South Africa’s outgoing CEO Sullivan O’Carroll at the recent “Back to Basics” municipal summit in the presence of Gordhan and President Jacob Zuma.

Steiner says the company is working with government to find a sustainable solution. He says Nestlé was satisfied with Rural’s management of the distribution and won’t object to its return, but it will have to be aligned with the local municipality, which seemingly was not the case before.

Afriforum believes private companies should be licensees, as doing it through municipalities may just add another layer of costs. Esterhuizen says if companies compete for licences it may further bring down tariffs.

The organisation is however aware that there may be legal stumbling blocks to this approach, as electricity distribution is constitutionally reserved as a municipal competency.

There are currently two other examples of municipalities that have outsources their electricity distribution to private companies. They are Mafube, based in Frankfort in the Free State where Rural has in December 2011 entered into an agreement with the municipality to manage the system for 25 years, and in Tshwane, where AfriSake, the sister movement of Afriforum, is challenging the appointment of Peu Capital to transfer Tshwane consumers to prepaid electricity meters and manage the distribution and sales on behalf of the municipality. The challenge is based on alleged contraventions of the supply chain regulations.

Esterhuizen says while Afriforum is in favour of privatisation of electricity distribution, it will be depended on fair and transparent processes.