Municipalities and Eskom must work together to secure the well-being of South Africans
The Eskom Holdings Soc Ltd v Lekwa Ratepayers Association and Others; Eskom Holdings Soc Ltd v Vaal River Development Association and Others (870/20) [2022] ZASCA 10 (21 January 2022) is the most recent judgment in which the Supreme Court of Appeal (SCA) made a similar finding. In this case, the SCA upheld an interim interdict restraining Eskom from reducing its bulk electricity supply to Ngwathe and Lekwa municipalities, pending the finalisation of review applications to set aside Eskom’s decision to reduce the bulk electricity supply to these municipalities. This article provides a summary of the case and discusses the implications of the case for other municipalities and Eskom in their dealings with one another.
Background
Eskom took a decision to reduce bulk electricity supply to the Ngwathe and Lekwa municipalities due to historic, outdated and inadequate contractually agreed ‘Notified Maximum Demand’ (NMD) supply levels. This decision was taken in response to the municipalities’ continuous failure to honour their payment obligations towards Eskom for many years, on the one hand, and the failure to reach an agreement on certain conditions in the agreement, on the other hand. The debt owed by both municipalities to Eskom stretched into billions of rands. At the end of June 2020, Ngwathe Municipality owed Eskom an amount of R1 259 417.66 while Lekwa Municipality owed R1 125 526 024 as at 31 July 2020. The points of contestation between the municipalities and Eskom related to the monthly prepayment for the additional bulk electricity supply and the liability for the repairs to and the upgrading of infrastructure to accommodate the increase of the contractually agreed NMD supply levels.
Impact of Eskom’s administrative decision on the rights and well-being of the people
Before Lekwa Ratepayers Association NPC and Vaal River Development Association (Pty) Ltd successfully obtained an interim interdict in the High Court, Eskom’s decision to reduce the bulk electricity supply to these municipalities was already implemented and had far-reaching consequences that extended beyond the two municipalities. Households, industries, businesses, professional practices and hospitals were all affected by this decision and a ‘catastrophe with socio-economic and humanitarian consequences that adversely impacted the health and well-being of individuals within their jurisdictions’ unfolded [para 7]. The lack of sufficient electricity supplied to the two municipalities caused significant rotational loadshedding. This resulted in affected towns (e.g Parys in the Ngwathe Municipality) experiencing loadshedding of more than 11 hours per day and the affected towns in Lekwa Municipality experiencing loadshedding for up to two hours at a time on an average three times a day. Eskom’s decision to reduce bulk electricity supply in these municipalities, therefore, had the effect of literally bringing the communities in these two municipalities to a complete standstill and threatened the closure of businesses with accommodating job losses.
The decision of the High Court
In light of the far-reaching consequences of Eskom’s decision, Millar AJ granted an order that Eskom increase or alternatively restore the maximum electricity load supply to the level it previously supplied to Parys and Vredefort in Ngwathe Local Municipality. The Court further interdicted Eskom from implementing its decision to limit the electricity supply to these communities. The High Court granted a similar order in the Lekwa application in which the reduced electricity supply affected the towns of Standerton, Sakhile, Meyerville and surrounds in Lekwa Municipality. Unsatisfied with the outcome of these applications, Eskom appealed the matter to the SCA.
The decision of the Supreme Court of Appeal (SCA)
The SCA described the nature of the relationship between Eskom and municipalities as one in which Eskom supplies bulk electricity to municipalities which, in turn, supplies it to the end-users (i.e the community). This relationship enables municipalities to deliver on their constitutional mandate by supplying electricity to secure the economic and social well-being of the people in their respective jurisdictions. The SCA held that this relationship brings the parties within the purview of the Intergovernmental Relations Framework Act 31 of 2005 (the Act). Section 41 of the Act requires organs of state to make reasonable efforts in good faith to settle intergovernmental disputes. The SCA held that disputes between Eskom and the Ngwathe and Lekwa municipalities arose in relation to the manner in which the debt would be liquidated, the remedies available to Eskom, in the event of default, and the terms upon which Eskom would agree to increase their historically agreed NMD levels to meet their present electricity supply demands. These are intergovernmental disputes which ought to have been addressed through a dispute resolution mechanism as required in section 40 of the Act and all efforts to resolve the disputes should have been exhausted before approaching a court. The Court stated that Eskom was not permitted to unilaterally reduce the bulk supply to the two municipalities. The Court further reasoned that had Eskom followed the dispute resolution mechanisms and procedures as set out in the Act, it could have triggered a section 139 provincial or national intervention as the two municipalities could no longer meet their constitutional and financial obligations. Against this background, the SCA upheld the interim interdict and dismissed Eskom’s appeal with costs.
Commentary
The Bill of Rights binds the legislature, executive, judiciary and all organs of state, including Eskom and local government. Where necessary, Eskom and municipalities must cooperate and fulfil their obligations towards each other in the public interest. Electricity is one of the most important basic services and has become indispensable, particularly after the COVID-19 pandemic prompted all facets of society, including government, schools and tertiary institutions and businesses, to adopt digital technologies to carry out their functions. The decision to terminate or reduce electricity supply in municipalities is, therefore, a drastic and extreme one which can only be taken in limited circumstances and after all other remedies have been exhausted. As the first level of assurance, Eskom must have the appropriate checks and balances in place to reduce the risk of municipalities falling into arrears. If this fails, there must be an appropriate response to bring municipalities in compliance and avoid debts from growing exponentially year on year. In resolving conflicts, organs of state, such as municipalities and Eskom, must aim to reach outcomes that will secure the well-being of the people.
Municipalities, on the other hand, should get their houses in order and urgently implement the necessary interventions that will ensure that they raise sufficient funds that enable them to set off their debts timeously and avoid defaulting on payments. In this regard, other municipalities should consider adopting the intensive debt recovery programme being implemented by the City of Tshwane, among other municipalities. On 18 February 2022, the City began with the roll out of the #TshwaneYaTima revenue collection campaign which enabled it to collect R500 million as at 23 February 2022 (i.e. within five days after the campaign started), after the municipality disconnected the electricity supply of 533 government accounts and 528 businesses that were in default due to non-payment. Some of the defaulting parties with large municipal debts were also made public on the City’s official Twitter account. The case of the City of Tshwane illustrates how the financial health of municipalities is dependent on the effective performance of municipalities’ functions. The collected funds will be useful in setting off the debts of the Tshwane metro, among other needs.
In addition, the judgment also raises questions about the effectiveness of intergovernmental relations, particularly within the functional area of electricity. Given that several other cases with a similar nature have reached the courts, it prompts the question of why there are such poor intergovernmental relations between municipalities, provincial governments, the national Department of Public Enterprises and, most importantly, Eskom? The same applies to the dispute-settlement mechanisms or procedures that ought to be adopted to settle intergovernmental disputes. Are these mechanisms effective? It may also be that these mechanisms should be strengthened or capacity building is necessary to achieve a coherent government and effective and efficient service delivery.
Adv Jennica Beukes, Legal Practitioner & Doctoral Researcher