SCOPA met with members of the Eskom Board, the Acting CEO and other executives of Eskom as well as the Director-General of Treasury to discuss the debts and the receivables of Eskom. The Committee was concerned about the dangers that the mounting debt posed to the economy. Eskom made a presentation to the Committee before Members raised their concerns.
The Eskom Board had taken office six weeks previously and had identified a number of critical issues that needed their attention: liquidity of the entity, governance of the entity, and releasing interim results. The Board had made small but effective shifts. Eskom had secured a R30 billion credit facility and had made progress in clearing the qualified audit issues. Several executives suspected of wrong doing had resigned. Employees had been instructed to choose whether they wished to be Eskom employees or service providers, but they could not be both.
The huge trade receivables of the power utility continued to pose problems for Eskom and its ability to ensure effective supply of electricity to customers throughout South Africa. The total overdue debts, including interest, stood at approximately R10 billion in March 2017, which was roughly the value about two years previously. In the past, Eskom had sought to control the debts through power interruption, but it could not carry on with plans due to legal, technical and political issues and the associated impact on the economy. The most effective and sustainable solution was to move municipalities from post payment to prepaid meters.
Total debt had escalated from R 6 billion in March 2016 to R 9.4 billion in March 2017 and had increased to R13 billion by March 2018. The municipal debts were so high that the debt owed impacted on electricity supply and it had reached a point where Eskom had been cutting supply to municipalities that showed no willingness to pay their debts. Investors were unwilling to invest their money knowing full well that people would not pay their debts.
The Acting CEO at Eskom promised that things would get better moving forward. At the end of November 2016, the Board had initiated the Promotion of Administrative Justice Act to recover some of the R10.2 billion municipal debt. R3.5 billion was interest and the balance was capital. Since November 2016, R1.3 billion had been recovered; bringing the current debt to about R9.9 billion. Eskom would collect another R400 million before the end of 2018. That would reduce the debt to R9.5 billion. The bulk of the debt had been outstanding for over 90 days. The total debt owed by Soweto alone was R12 billion, of which R5 billion was interest. He said the problem had worsened after writing off the debt in Soweto twice. Therefore, writing off debt in places like Soweto was not the solution.
There were 66 offending municipalities and 54 had entered into Payment Agreements with Eskom, backed by council resolutions. The Gauteng North Constitutional Court had ruled that Eskom had the constitutional right to cut supply to non-paying customers, households had the right to electricity and the municipalities had an obligation to supply electricity to households that were constitutionally entitled to have electricity. The case had been brought by AfriForum.
Eskom proposed that municipalities that allowed the installation of pre-paid meters would have the interest portion of their debts written off. Such municipalities would only pay the capital component of their debts. That proposal had been accepted at provincial level and customers would continue to receive electricity. The Department of Co-operative Governance and Traditional Affairs, Department of Public Enterprise and Treasury had set up a task team to look into constitutional issues that were beyond Eskom’s scope. It was a welcome initiative as it facilitated speedy resolutions.
Eskom confirmed to the Committee that measures would be taken that paying households were not disconnected.
Members had many concerns. Why Eskom had waited that long to address the accumulation of debt? How sustainable were the pay agreements? Did Eskom have a monitoring system to prevent inappropriate connections and loss of properties to fire? Why did Eskom need guarantees when its turnover was above R20 billion in revenue? Why had guarantees increased significantly in the past year? Members asked what Eskom was doing about electricity theft; what was going to happen in the long term with the municipalities that were not able to pay back the money; whether prepaid meters were also going to be installed in businesses. The majority of the debt came from rural areas. Did Eskom have a strategy to get those rural municipalities to pay? How did Eskom intend to address the issue of inequality?
Committee Members asked how the Committee could intervene so that power supply to municipalities was not interrupted. How would the indigent enjoy free basic electricity? What was the Eskom communication strategy about free basic electricity to indigents? One Member was particular surprised that there were instances where the interest owed was greater than the capital debt as that was illegal. Another Members asked about the role of NERSA in regulating payments. What could Parliament do to strengthen the role of NERSA?
The Director-General, National Treasury, said Eskom’s debt was one of the problems confronting municipalities. According to the second quarter report of 2017 that would be published soon, the total debts that municipalities owed to service providers stood at R34.3 billion. That figure had increased by R6 billion from the previous year. He promised to furnish the Committee with detailed information regarding the comparative analysis of revenue collected by Eskom versus revenue collected by municipalities. The collection rate was 92-94% in areas supplied by municipalities, while it was 34% in areas directly supplied by Eskom. The current payment module would remain in use in order to avoid fiscal problems. Some of the concerns raised would translate into policy guidance when the Presidential Co-ordinating Council met to discuss the matter. Treasury was working with municipalities to improve the billing system and to make adequate budgetary allocation to pay for the services they used.
The Chairperson wondered why there was no correlation between irregular and fruitless and wasteful expenditure. The fruitless and wasteful expenditure was sky-high, while the irregular expenditure was low. While that was not the agenda of the day, he noted that the Committee was not comfortable with those statistics. The reason for the meeting was to discuss the debts and the receivables. He said most of the MPs came from districts or municipalities that were affected. Therefore, most MPs would talk from their personal perspectives. He handed over to Eskom to make the presentation.
Briefing by Eskom
Ms Sindi Mabaso-Koyana, Board Audit & Risk Committee Chair, Eskom, thanked SCOPA for the opportunity to present, noting that the engagement with SCOPA spoke to the importance of the role that Eskom played in the economy of the country. She informed the Committee that the Board had taken office six weeks previously and had identified a number of critical issues that needed their attention: liquidity of the entity, governance of the entity, and releasing interim results. The Board had made small but effective shifts. Eskom had secured a R30 billion credit facility and had made progress in clearing the qualified audit issues. Several executives suspected of wrong doing had resigned. Employees had been instructed to choose whether they wished to be Eskom employees or service providers, but they could not be both. The Board was taking precautions against corruption. The Board would be focussing its attention on bad debts and those of the municipalities, in particular.
Ms Mabaso-Koyana spoke extensively about how defaulting municipalities affected the power utility and the ability of Eskom to supply electricity to the nation. Total debt had escalated from R 6 billion in March 2016 to R 9.4 billion in March 2017 and had increased to R13 billion by March 2018. She noted that the municipal debts were so high that the debt owed impacted on electricity supply and it had reached a point where Eskom had been cutting supply to municipalities that showed no willingness to pay their debts. Eskom supplied power to municipalities, which in turn supplied power to consumers, including households and businesses. The consumers paid municipalities, which in turn paid Eskom.
Mr P Hadebe, Acting Group CEO, Eskom, stated that Eskom should be above reproach in the eye of the public. He assured the public that the assets entrusted to Eskom had not been plundered by corruption and other irregularities. He expressed satisfaction with how Eskom had dealt with the R800 million spent on irregular expenditure. Mr Hadebe promised that things would get better moving forward. At the end of November 2016, the Board had initiated the Promotion of Administrative Justice Act (PAJA) to recover some of the R10.2 billion municipal debt. R3.5 billion was interest and the balance was capital. He pointed out that the interest and capital were treated differently. Since November 2016, R1.3 billion had been recovered; bringing the current debt to about R9.9 billion. Eskom would collect another R400 million before the end of 2018. That would reduce the debt to R9.5 billion. The bulk of the debt was over 90 days.
There were 66 offending municipalities and 54 had entered into Payment Agreements with Eskom, backed by council resolutions. According to Mr Hadebe, Msukaligwa and Emalahleni were threatened with cuts by March 3, 2018 if they did not honour the Payment Agreements. Currently, the interruptions were on hold as a result of the agreement between the stakeholders. The council resolutions encouraged customers to pay their electricity bills upfront in a way similar to loading airtime on a cellphone. Post-payment meters would be replaced with pre-paid meters. He said Eskom would try to resolve all PFMA issues and put a strong case to the Competition Commission on why municipalities were treated differently.
He discussed the difficulty Eskom had in collecting revenues from municipalities. Municipalities owed a lot and the problem required timeous intervention to prevent the situation from spiralling out of control. The Board of Eskom had supported the reduction of interest from Prime Plus 5% to Prime Plus 2.5%. He said Eskom had been charging interest after 15 days because the big suppliers required payments within 7 days. Despite the inconvenience, Eskom had decided to charge interest after 30 days.
He also spoke about the Notified Maximum Demand (NMD). That was the maximum amount of electricity that municipalities were allowed to use, beyond which they were penalised. Municipalities wanted to increase the NMD because of urban influx and population growth but without paying any penalties. Eskom was working with the National Energy regulator of South Africa (NERSA) to address that issue. Once NERSA approved upgrading, Eskom would upgrade the necessary infrastructure and the municipalities would pay the costs of the upgrade over a 20-year period. He said that municipalities that sought to increase their NMD would have to pay upfront. He said Eskom had succeeded in providing solutions to the issues raised by various municipalities.
Mr Hadebe provided a breakdown of the debts owed by the municipalities. The municipalities owe R9.9 billion. He emphasized that the total debt owed by Soweto alone was R12 billion, of which R5 billion was interest. He said the problem worsened after writing off the debt in Soweto twice. Therefore, writing off debt in places like Soweto was not the solution. Eskom could not cut power supply to defaulting municipalities over a long time due to economic considerations. According to him, R220 million per day was lost in the past due to load shedding. However, funders and rating agencies were complaining about the state of the debts.
Investors were unwilling to invest their money knowing full well that people would not pay their debts.
According to Mr Hadebe, municipal debts had increased 10-fold in the last five years. He was worried that debt had increased by 100% at the end financial year that ended in March. That had an enormous impact on the tariffs charged to customers. Some provinces and other interest groups had engaged Eskom in cases regarding the issue of power cuts. The Gauteng North Constitutional Court had ruled that Eskom had the constitutional right to cut supply to non-paying customers, households had the right to electricity and the municipalities had an obligation to supply electricity to households that were constitutionally entitled to have electricity. The case had been brought by AfriForum.
The three top defaulting provinces were Mpumalanga (MP), Free State (FS) and North West (NW). The Premiers in most of the Provinces had demonstrated support for Eskom’s initiatives. Eskom had been able to negotiate 54 payment agreements with some of the affected communities following the interventions of the Premiers. He expressed Eskom’s appreciation to the Premiers.
Following the interventions of former Ministers van Rooyen and Brown as well as officials in National Treasury, Eskom had decided not to cut supply to any municipality in the near term. Eskom had counter resolutions, with respect to Msukaligwa and Emalahleni, which Eskom was willing to present to the Committee.
Mr Hadebe expressed concern about Soweto’s debt. In Soweto, a total of 49 000 pre-paid meters had been installed in households in the last 12 months. 17 000 households were disconnected due to non-payment of debts. He said that there was a significant reduction in debts in Soweto due to the willingness of households to use pre-paid meters. Eskom, in turn, had promised to write off the debts of households with pre-paid meters. While there were criminal issues in Soweto, he noted that there were still households who were willing to pay their debts. Eskom had 180 000 customers in Soweto. 130 000 customers had conventional meters, while the others used pre-paid meters.
Eskom had proposed that municipalities that allowed the installation of pre-paid meters would have the interest portion of their debts written off. Such municipalities would only pay the capital component of their debts. That proposal had been accepted at provincial level and customers would continue to enjoy electricity, provided they honoured the pay agreements. He said the Department of Co-operative Governance and Traditional Affairs (CoGTA), Department of Public Enterprise (DPE) and Treasury had set up a task team to look into constitutional issues that were beyond Eskom’s scope. It was a welcome initiative as it facilitated speedy resolutions.
He confirmed to the Committee that measures would be taken that paying households were not disconnected.
The Chairperson of the Committee said he will like to see a permanent CEO at Eskom instead of acting CEOs. That would allow SCOPA to monitor commitments made by officials of government entities.
Ms N Khunou (ANC) understood the problems Eskom faced. She was concerned that people might have the wrong perspective about paying electricity bills due to historical challenges, particularly as it related to apartheid. Also, people were not working and unemployment as well as inequality continued to increase. How did Eskom intend to address the issue of inequality? She suggested that the green economy (solar energy) may offer solutions to some of the problems.
Ms Khunou asked who the Eskom funders were. Where did Eskom get its loan from? She expressed concern about the major shareholders in Eskom. She questioned why Eskom had waited that long to address the accumulation of debt. She also complained about the unlawful attitude of Eskom employees in terms of selling electricity illegally. She remarked on the R800 million irregular expenditure of Eskom. How did Eskom intend to fund electricity connections to Mozambique?
The Chairperson cautioned that the discussion should be restricted to receivables and debts.
Mr Hadebe accepted responsibility for failing to take decisive steps when the debt was still low. Eskom was unable to carry on with interruption, when the debt was around R500 million for instance, because of political, technical and economic reasons. On electricity theft, Mr Hadebe said that four syndicates had been convicted for 1000 counts of electricity theft. Measures were in place to arrest offending people and this significantly reduced losses due to electricity theft. Eskom worked with the Hawks to deal with criminal entities. Also, Eskom tried to upgrade its meters to avoid losses.
Mr Louis Maleka, Senior General Manager Distribution (Eskom), said that smart meters would help to reduce tampering and other unlawful activities associated with meters. Smart meters were tamper-proof, to a reasonable extent, and would reduce the risk of thefts.
Mr Hadebe said the R800 million in fruitless and wasteful expenditure was attributable to former senior executives of Eskom. A major part was due to exaggerated invoices over five years and those involved had been disciplined appropriately. Disciplinary measures had included dismissal.
The Chairperson asked what Eskom was doing to recover the stolen money.
Ms Sindi Mabaso-Koyana, Board Audit and Risk Committee Chair (Eskom), said that criminal investigations and civil cases were on-going against the culprits and measures were in place to recover the money.
Mr T Brauteseth (DA) expressed concern that the matter had not been handled with the seriousness it deserved. He suggested the matter of irregular expenditure be discussed as a stand-alone issue because the Committee did not have access to the details at the moment. Who were those involved in the irregular expenditure? How far had the case gone?
Mr D Ross (DA) said there should be implications and consequences. He requested the names of the officials involved, the procedure followed and the specific disciplinary actions.
Mr E Kekana (ANC) urged the Chairperson to maintain focus on receivables and debts. He agreed with other MPs that it would be good to have discussions on irregular expenditure later.
Ms T Chiloane (ANC) said that four municipalities were affected in her Province. Eskom had contravened the PFMA by not acting timeously in terms of debt collection. How sustainable were the pay agreements? Did Eskom have a monitoring system to prevent inappropriate connections and loss of properties to fire? She expressed concern about communities that could not afford to pay their debts. She cited the case of R50 million owed by Msukaligwa. Those poor communities would have to abandon all other projects if they had to pay their electricity debt.
Ms Chiloane was also concerned about protests that sprung up in angry communities. Another concern was the instalment of pre-paid meters in businesses. ow will How would businesses see pre-payment? She said that businesses owe most of the debts. What was the impact on the economy if businesses could not afford pre-payments?
Mr M Hlengwa (IFP) commended Eskom’s presentation. He expressed concern about the state of the debt. He was surprised that the debt had stood at R10 billion after two years. Eskom did not show seriousness about debt reduction. While Eskom had its failures, the bulk of the problems lay with the municipalities. The municipalities were responsible for revenue collection. While some municipalities lacked the capacity to pay their debts, there were other municipalities that collected the money and channelled it to something else. Adequate policy tools had to be in place to check the activities of municipalities that were able to pay their debts.
He expressed concern about the inconsistency in the collection cycle. Was it 15 days or 30 days? Some municipalities used the inconsistency in the collection cycle as a defence mechanism against revenue collection. The South African Local Government Association (SALGA) had raised similar concern. He wanted a comprehensive breakdown of debt. How much revenue did municipalities collect from customers, how much was paid to Eskom and what was the outstanding debts? Most debts were attributable to government entities and businesses. Eskom should focus more on those owing so that paying customers were not at the receiving end.
Mr Ross spoke about the debt situation and disparity in income streams in different municipalities. He was surprised that the debts exceeded the capital due to interest in certain cases. That was a violation of the in Duplum law. Though the constitutional court ruling stated that Eskom had the obligation to collect revenue from customers, Mr Ross was concerned about municipalities that lacked the financial means to pay their bills. In that case, servicing of debt by equitable share could help to reduce debt.
Mr Ross was surprised that Eskom served draconian notices to paying customers asking them to explain why the electricity should not be cut but was satisfied with the way Eskom had treated the five issues raised by the municipalities. He was concerned about the attitude of municipalities that refused to pay their bills for a prolonged period. He commended the intervention of Section 216 of the Constitution in dealing with municipalities known for fiscal waste and receiving disclaimers. Section 154 of the Constitution also helped to provide sustainable solutions at both municipal and provincial levels. The rights of paying customers should be protected. Disconnecting power supply of paying customers might lead to a complex legal situation like that of AfriForum. There should be open lines of communication to Eskom and Treasury over the period of interruption and disconnection in order to get feedback from the customers. He noted that interruption and disconnection might hinder economic growth.
He questioned why Eskom needed guarantees when its turnover was above R20 billion in revenue. Why had guarantees increased significantly in the past year? That could drain the fiscus in terms of contingent liabilities. He also questioned the methodology of price determination and funding of the new bill project. He urged Eskom to consider inflation in its price determination.
Mr Hadebe said that Eskom has a solid billing and revenue collection system. Eskom knew where that fitted in the Public Finance Management Act. He explained that Eskom and Matjhabeng had been involved in a Constitutional Court case that week, which Eskom had won. The court ruling was appealed, and the case was currently with the Constitutional Court. That sort of thing wasted time and resources. He said municipalities, government entities, businesses and households would be placed on pre-paid meters. He said the collection cycle, either 15 or 30 days, was not part of the problem. He said The Department of Co-operative Governance and Traditional Affairs (CoGTA), Department of Public Enterprise (DPE) and Treasury had set up a task team to look into constitutional issues that were beyond Eskom’s scope. That was a welcome initiative as it facilitated speedy resolutions. He confirmed to the Committee that measures would be taken so that paying households were not disconnected.
In response to Mr Ross, he said money paid to Eskom would be used to pay capital unlike what had happened in the past, where interest was considered first. He was concerned about the situation where households paid revenue to municipal, which in turn failed to pay Eskom. In those cases, Eskom had no choice other than to cut supplies to the entire municipality. Unfortunately, that left paying customers at the receiving end.
Mr Booi was concerned about municipalities that did not have the financial means to pay their debts, especially those in the rural areas. How did Eskom intend to treat those municipalities in relation to municipalities that could afford to pay? The majority of the debt came from rural areas. Did Eskom have a strategy to get those rural municipalities to pay? Eskom’s action would impact either positively or negatively on the economy. All stakeholders had to be engaged for Eskom to arrive at a sustainable solution.
Mr Kekana acknowledged the enormity of the debts. He wanted to know the comparative analysis between revenue collection and debt status in areas directly supplied by Eskom versus those supplied by the municipalities. What was the communication strategies with customers that were owing? Was there any co-operation from them? What was the success rate? Going forward, did Eskom intend to supply customers directly or through the municipalities?
Mr T Brauteseth (DA) spoke about two municipalities in Mpumalanga that were currently negotiating with Eskom and another municipality that had been scheduled for cut-off on March 13. How could the Committee intervene so that power supply to those municipalities was not interrupted?
Nelisiwe Magubane, Eskom Board member, noted that South Africa’s democracy is based on reconciliation. However, reconciliation had to be balanced with justice. While South Africa operated a mixed economy, the capitalist component remained strong and prominent. Most companies required customers to pay for the service they used. The government had tried to address the socialistic component by providing people, especially the disadvantaged, with free basic electricity but that could only be sustained if there was a reliable database. A viable economic model should be designed to give free basic electricity to indigents. That ensured justice in reconciliation. The PFMA forced Eskom to adopt the capitalist model. Eskom did not interrupt defaulting municipalities for a long time because of economic considerations. Debts kept accumulating because some communities that had the financial means were not paying. He suggested that communities seeking exemption from their constitutional right to collect revenue from customers should allow Eskom install pre-paid meters in order to prevent continuous accumulation of debts.
In terms of community engagements, Mr Maleka said that Eskom and SALGA had a joint programme called “Active Partnering” that helped municipalities to reduce their debts. At a strategic level, there were interactions with councillors, and communities were engaged in community fora. Eskom managers also engaged mayors and municipal managers. At a higher level, the Eskom CEO and other top officials were engaging with Co-operative Governance and Traditional Affairs (CoGTA), Treasury and provinces. Eskom had municipal executives, who engaged one-on-one with municipalities to understand the challenges. Eskom personnel were capable of helping communities with revenue collection, billing and financial management.
Mr Hadebe said the municipalities scheduled for power cuts in Mpumalanga would no longer take place due to negotiations and payment agreements.
According to Ms Ayanda Noah, 42% of Eskom revenue came from the municipalities. Eskom sold electricity in bulk to municipalities, which in turn sold to various customers. Municipalities were responsible for revenue collection from customers. Eskom was taking proactive steps to avoid losses associated with meter tampering. Eskom installed its meters in a way that was secure, accessible and tamper-proof. The new technology would reduce theft, debts and help customers to pay less.
On Eskom direct customers, Ms Noah said that customers entered into an agreement with Eskom, which then gave them sophisticated meters. Eskom meters, either pre-paid or post-paid, had electronic systems that could interrogate meters and download necessary information. That helped Eskom to monitor the activities of customers. Smart pre-payment was the preferred choice going forward.
According to Mr Hadebe, Eskom was not interested in taking responsibilities away from municipalities. However, Eskom could help municipalities in the areas of billing and revenue collection.
Ms Khunou was concerned that the R10 billion-debt had persisted over three years. Mines were closed in Matjhabeng and people were out of work. Businesses were the main culprits, but the households were at the receiving end. How would the indigent enjoy free basic electricity? What was the Eskom communication strategy about free basic electricity to indigents?
She wanted the issue of R10 billion to be resolved appropriately so that it did not recur in the future. She urged Eskom to have strong agreements with municipalities in order to ensure debt reduction and alleviate the plight of the poor. She expressed concern about how police escorted Eskom personnel in certain communities. Was there a budget for those police officials?
Ms Chiloane asked about the sustainability of the payment agreements between Eskom and the affected municipalities. She requested the names of the 21 customers, who intend to join Emalahleni in a court case against Eskom to prevent interruptions. She sought information about Eskom’s engagements with stakeholders. Active engagements would help Eskom to know people’s perspectives on important matters.
Mr Booi wanted Eskom to interconnect its policies with the radical socio-economic transformation agenda. How did Eskom intend to communicate its decisions and policies to the public, especially in the rural areas? Eskom should not favour urban dwellers at the expense of those who lived in rural communities. He requested Eskom to give a comprehensive analysis of the debt situation. Could the debts be that high due to laxity within Eskom? Was Eskom run in a proper way? Members of the Parliament could always help to address the policy challenges that confronted Eskom. He told Eskom to explain its role in the problem rather than attributing the whole problem to non-paying customers. He was concerned about the operation of Eskom in communities that were prone to crime.
Mr Hlengwa said that it was unfair to disconnect paying customers. Interruption should only affect non-paying customers. He said consequence management should be handled seriously.
Mr Ross was concerned about the effect of disconnection on disadvantaged people and employment opportunities. He asked about the role of NERSA in regulating payments? What could Parliament do to strengthen the role of NERSA? He was interested in the number of municipalities seeking exemption from Constitutional Court. What was the progress of that process? What was the position of NERSA in the process?
Mr Kekana insisted on knowing the situation in Eskom-supplied areas. Did Eskom’s presentation to SCOPA include areas directly supplied by Eskom?
According to Mr Hadebe, the recovery in Eskom-supplied communities was 90%. He stated that Eskom faced a major challenge in Soweto in terms of revenue collection. Some communities in Matjhabeng were interrupted because the entity responsible for revenue collection owed Eskom. From PAJA point of view, Eskom engaged communities in decision-making processes. He promised to work out a better communication strategy to the affected communities.
He said that the case involving 21 customers in Emalahleni was dropped on March 5, 2018. He promised to furnish the Committee with the names of those involved.
Regarding the sustainability of payment agreements between Eskom and customers, Mr Hadebe said the agreements were reached after an affordability analysis by Treasury and the Department of Public Enterprise. He said power would not be interrupted in communities that honoured their agreements. He said debt accumulation was not a result of a lack of adequate internal processes in Eskom. He promised to co-ordinate with NERSA and Eskom would base its decision on NERSA’s recommendations.
Mr Booi requested Eskom to share detailed information about the debt situation so that Committee could follow the trend in the future. That would also help MPs to have fruitful engagements with their communities.
Mr Hadebe said Eskom had recovered R1.3 billion between November 2017 and February 2018. The debt was currently R9.9 billion and should decrease to R9.5 billion by the end of 2018.
Mr Maleka said Eskom and municipalities charged different tariffs. Eskom engaged with SALGA to rationalise tariffs in a way that was fair, transparent and equitable. He said that Eskom engaged NERSA in terms of licensing of the distribution business, which helped to improve services to the customers. All stakeholders had to work together to ensure a successful outcome.
Ms Mabaso-Koyana said that there were a number of cases in the Constitutional Court regarding direct supply by Eskom and paying versus non-paying customers. She said efforts had been made to consolidate all the cases and the hearing might take place from May 2 to May 5, 2018. She said there was a technical team that looked into constitutional issues between customers and Eskom. Municipalities and SALGA maintained that electricity supply was an exclusive right of the community. However, that was not in line with the legislation in the Constitution. Eskom could enter into service delivery agreement with municipalities. She suggested that the role of Eskom and municipalities should be articulated. However, Eskom had to proffer solutions to the conflicting legislations.
Eskom board member, Nelisiwe Magubane, said Eskom could not afford to be insensitive to the suffering of the poor and disadvantaged. The entity promised to have more engagements with communities through different avenues, especially Town Hall meetings in order to know their challenges and to arrive at sustainable solutions. The Constitutional Court cases unfortunately only benefited the lawyers. Eskom Board had directed its management to prepare documentation on how to promote black industrialists in South Africa. She said Eskom had plans to train Small, Medium and Micro-Sized Enterprises (SMMEs), particularly in the energy sector of the green economy. Eskom prioritized youth businesses, women- and disabled-owned businesses. Eskom also promoted localisation and development of small businesses.
Eskom worked with universities to graduate a number of black entrepreneurs. Youths trained by Eskom were involved in manifold design of photovoltaic (PV) systems in conjunction with universities and research institutes. The PVs could be used in areas where Eskom transmission lines cannot reach. Ms Magubane requested Mr Hadebe to prepare and submit documentation to the Committee on what Eskom was doing to promote radical socio-economic transformation.
Ms Noah said Eskom had made considerable progress in reducing the debts. However, she was concerned about the sustainability of the payment agreements. Customers had to pay revenue to municipalities, who, in turn, paid Eskom. She said Eskom had disposed of some assets of the state in 2015 to raise R23 billion in equity to re-capitalise. Eskom could not continue to re-capitalize when people were not paying. According to Ms Noah, some municipalities that owed Eskom were also in default for other services, especially water. According to Treasury, 71 municipalities were not sustainable in reality. Thus, Eskom sought to understand the underlying challenges confronting the municipalities. It was important that various stakeholders provided their inputs to arrive at viable solutions. She suggested that short-, medium- and long-term issues should be handled appropriately. She said business entities and service providers were responsible for the majority of the debt. She noted that there were administrative and capacity challenges in the ability of municipalities to collect revenue.
In terms of funding models, Ms Noah said that policies were in place to cushion the effects on households. There was a need for an up-to-date indigent register so that free basic electricity was delivered to the appropriate households. She emphasised the importance of dealing with fundamental issues instead of focusing on the outcomes of underlying problems. She promised to update the Committee with information regarding guarantees.
Mr Dondo Mogajane, Director-General, National Treasury, said Eskom’s debt was one of the problems confronting municipalities. According to the second quarter report of 2017 that would be published soon, the total debts that municipalities owed to service providers stood at R34.3 billion. That figure had increased by R6 billion from the previous year. He said that the debts of municipalities to service providers continued to grow and appropriate steps had to be taken to prevent debts from spiralling out of control. The total debts of 59 municipalities stood at R4 billion in 2015 when Treasury had intervened. The debts now stand between R 9 billion to R 10 billion. He was concerned that only one municipality out of twenty of the biggest municipalities had budgeted for payment agreements. He promised to furnish the Committee with detailed information regarding the comparative analysis of revenue collected by Eskom versus revenue collected by municipalities. The collection rate was 92-94% in areas supplied by municipalities, while it was 34% in areas directly supplied by Eskom. He promised to work with relevant stakeholders to obtain up-to-date figures. That would help shape policy direction moving forward.
Mr Mogajane maintained that the current payment module would remain in use in order to avoid fiscal problems. He said that Treasury could not take appropriate action to control debt because of legitimate interference. That affected the ability of Treasury to impose credit control, which was a legitimate vehicle in terms of the PFMA. Some of the concerns raised would translate into policy guidance when the Presidential Co-ordinating Council met on Friday, March 9, 2018. Treasury was working with municipalities to improve the billing system and to make adequate budgetary allocation to pay for the services they used.
According to the Chairperson, the Eskom problem was just one component of the myriad of problems facing municipalities. All stakeholders including SALGA and CoGTA had to be actively engaged to providing lasting solutions to the problems. He wanted Eskom to give an exact figure of the capital and interest for each municipality. It was surprising that interest exceeded the capital in Soweto’s debt: R5 billion capital out of a total of R12 billion. Eskom should give appropriate figures. That would enable MPs to communicate issues effectively to their people. Why were townships in Matjhabeng supplied by municipality and towns supplied by Eskom? That was politically embarrassing. Why did Eskom increase tariffs whenever it incurred debts? That was not fair to the paying customers.
He cautioned that people who had the right to free basic electricity, the indigents, might be denied if Eskom did not have active engagements with the communities. That might also affect Eskom’s ability to get credit. He was concerned that Maluti-a-Phofung and Emalahleni owed a lot, yet there were disclaimers according to the Auditor-General’s report. In 2015/2016, Matjhabeng did not submit for audit. He asked about Eskom’s plan to supply electricity to every household in South Africa. Regarding the importance of electricity, he referred to Vladimir Lenin’s words: “Communism is Soviet’s power and electrification.”
Mr Hadebe said Eskom aspired to electrify every household in South Africa by the end of 2019.
The Chairperson thanked Eskom and the delegation from Treasury. He promised to consider the concerns raised during the meeting.
The meeting was adjourned.
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