A watershed judgment by the Supreme Court of Appeal (SCA) has dealt a hefty blow to Eskom’s plans to collect from non-paying customers in finding that the utility’s decision to interrupt power supply to two defaulting municipalities was irrational.
Eskom is weighed down by R480bn in debt and remains reliant on government bailouts to survive. It is, however, working to control costs and increase revenue and has in numerous instances interrupted power supply to non-paying municipalities in a bid to extract payment.
This may have to come to an end after the SCA judgment, handed down on December 29 2020. This dealt with appeals by Eskom in a matter regarding itself vs Resilient Properties and Others and another matter against the Sabie Chamber of Commerce and Tourism and Others.
In the judgment, judge Xola Petse, deputy president of the SCA, concluded that Eskom’s decision to interrupt bulk electricity supply to the Emalahleni and Thaba Chweu local municipalities was irrational as Eskom knew full well it would not result in the financially strapped municipalities settling their debt.
“The days of Eskom unlawfully interrupting electricity supply to paying end users in defaulting municipalities, as a strategy to recover debt from municipal governments, should be over,” said Piet le Roux, CEO of Sakeliga, a business interest organisation that joined the two matters as a friend of the court.
Though it might seem a straightforward matter in which Eskom enforces its right to collect what it is owed from non-paying customers, these legal proceedings have shown the matter is complex.
‘Various mistakes’
“The legalities of this whole thing are far from clear and Eskom had been making various mistakes, which has resulted in this and other judgments against them,” said Chris Yelland, MD of EE Business Intelligence.
For one, he said, Eskom has allowed this matter to develop for years without taking action. In the SCA judgment, Petse criticised Eskom for failing to manage its snowballing municipal debtors’ book over the past decade. A similar criticism was levied in a judgment handed down by the Pretoria high court in a matter relating to Eskom’s throttling of power supply to the non-paying Lekwa and Ngwathe municipalities.
In terms of “notified maximum demand”, municipalities are not supposed to draw more power than they have contracted with Eskom. The utility has, however, allowed municipalities to exceed maximum demand for extended periods, and instead of enforcing the terms of the contract, has charged hefty penalties — “so outrageously high municipalities will never be able to pay them”, said Yelland. Interest charged on unpaid Eskom debt is also exorbitant, he added.
The SCA further upheld the earlier judgment of the Pretoria high court, which held that organs of state must prove they have complied with the principles of intergovernmental dispute resolution before taking legal action against each other. “Eskom is a monopoly and are meant to negotiate before they go to court. Court should be the last resort,” said Yelland. “Added to that, the constitution requires that government entities should not litigate against one another.”
Le Roux said the judgment affirms that paying customers should not suffer because of governmental failures. “Organs of state might constitute separate institutions, but they are bound by a single constitutional duty towards the public.”
He said the SCA judgment further serves as a charge against not only the municipalities and Eskom that had allowed spiralling municipal debts at the expense of the taxpayer, “but specifically National Treasury and the national executive who have failed to ensure proper financial administration in other spheres of government”.
Government intervention
According to Le Roux, several other court cases attempting to reverse or prevent Eskom’s municipal debt recovery interruptions were put on hold in anticipation that the SCA case would deliver jurisprudence to be followed in other cases.
He warned that courts should no longer be content with merely granting an interdict against Eskom. “The scope of the municipal debt crisis requires intervention by national government,” Le Roux said.
Yelland can’t see that the municipal debt issue will easily be resolved. Even an interministerial task team established in 2016 to deal with Eskom’s municipal debt problem failed to resolve the issue. In July 2020, co-operative governance & traditional affairs minister Nkosazana Dlamini Zuma washed her hands of the matter suggesting that the Treasury was responsible for working with municipalities on budget and finance issues.
“Eskom can enter into any arrangement it wants with these municipalities, but the problem is intractable because they just don’t have the money,” Yelland said. “There has to be some kind of negotiation.”
The R32.9bn is a drop in the ocean for a utility saddled with a R480bn debt burden. “What’s worrying though, if you look at the trend, [is that] it’s going up all the time,” he said. According to Eskom’s interim results, the arrears grew R4.9bn between March and September 2020. “The more the price of electricity increases, the more municipalities don’t pay,” said Yelland. “And it’s reached a stage where it’s just going up.”
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