SALGA advises Maluti-a-Phofung Local Municipality against signing one-sided and unsustainable Active Partnering Agreement with Eskom

Posted: 18 November 2022

The South African Local Government Association (SALGA) wishes to put it on record that it does not support the proposed Active Partnering Agreement between Eskom and Maluti-a-Phofung Local Municipality that purports to assist the municipality with operational challenges to secure revenue stream to enable payment of the bulk electricity account, whereas in it is intended to take over the electricity distribution function, including all revenue related to the function away from the hands of the municipality.

SALGA believes that the Distribution Agency Agreement is only fueled by one party's needs and is not sustainable for all parties entering the agreement and neglects the fundamentals that electricity is an important funding source for local government.

The Constitution of the Republic lists electricity reticulation as a local government responsibility and Section 153 of the places the responsibility on municipalities to ensure the provision electricity reticulation to communities in a sustainable manner as well as promote economic and social development.

SALGA Electricity, Energy and Public Works Working Group Chairperson, Cllr. Tebogo Hlakutse says: "We appreciate the challenges faced by some municipalities in discharging their executive and service authority function over electricity. SALGA supports that a sustainable and balanced Active Partnering Agreement with Eskom or any entity which has a capacity to provide the electricity distribution services be in place to provide sustainable and reliable electricity services to the communities. However, SALGA strongly feels that the current Eskom Distribution Agency Agreement in its form is not serving the needs of both Eskom and Maluti A Phofung equally and fairly".

Cllr. Tebogo Hlakutse adds: "Of particular concern is the financial sustainability of the municipality once Eskom takes over the electricity distribution function, including all revenue related to the function. The Distribution Agency Agreement also requires the Maluti A Phofung municipality to pay back the full debt amounting to almost R6 billion, as well as additional service fees. Further to this, if Eskom were to be appointed to be the service provider on behalf of the municipality, it needs to do so using the process legislated by the Municipal Systems Act, where Eskom as a service provider or agency will be expected to comply to the bylaws of the municipality where credit control, surcharges and other matters relating to electricity services are concerned".

According to SALGA's view, the proposed agreement is fuelled only by Eskom's need to recover what it is owed by the municipality, without any considerations of the interests and the sustainability of the municipality beyond this Active Partnering Agreement.

SALGA understands the time limitations and expectations imposed by the court order over the matter, and take this seriously, but feel strongly that this agency agreement if it is going to be a future model for assisting municipalities, that it must be done correctly, and should not create unwarranted precedence to the detriment of Maluti A Phofung and other municipalities who might want to enter into similar arrangements with Eskom or any other similar entity.

SALGA has been involved in the intergovernmental relations discussions which include the municipality, Eskom, National Treasury, COGTA to discuss a sustainable Active Partnering Agreement with Eskom. Furthermore, SALGA has provided advise and defended the municipality against signing an agreement that is unfair and unsustainable and have proposed a process within which this partnering should be finalised, and this is legislated for municipalities under the Municipal Systems Act, when a municipality wants to appoint an external service provider to provide services in its jurisdiction.