Municipalities to lose slush fund from electricity supply monopoly as High Court rules for PMB, NMB Business Chambers

Melanie Veness and Denise van Huyssteen, CEOs of the PMB and NMB Business Chambers, ventured where few in the private sector have the courage to tread by taking on the practical impact of the ANC’s ruinous cadre deployment system in the High Court. They are today celebrating a massive victory after winning what their legal adviser MC Botha describes as “an emphatic judgement”. At issue is the long-time practice of municipalities loading electricity tariffs to fund incompetent management. The consequence of the High Court’s finding will be to prevent all municipalities from using their monopoly over electricity supply – and their tariffs – as a bottomless slush fund financed by ratepayers. Veness spoke to Alec Hogg of BizNews.

Melanie Veness on what was at stake and why they decided to take Nersa to court

We spent quite a lot of time concentrating on electricity tariffs because for a lot of our members, a huge part of the income and expenditure statement is related to electricity. The way the tariffs have been approved in the past was based on a benchmarking methodology that Nersa applied. What was happening is that really bad tariffs were in place already where this situation was becoming exacerbated by the awarding of a municipal tariff every year. The municipalities would get a recommended tariff for municipalities, which was a percentage of the existing tariffs and it just perpetuated a bad base tariff to start off with. The legislation says they must base the awarding of municipal tariffs on cost of supply, plus a small margin and this was not happening. When you look at the disparity between what municipalities are charging and what Eskom is charging, there is a huge difference. Then, when you look at what some municipalities are charging relative to other municipalities, again, there’s a huge difference. We felt that the only way we could take this head on was to challenge the methodology Nersa applied. Incidentally, we did spend almost a year engaging with Nersa, trying to get them to change the methodology but we were unsuccessful, which was why we really had no option but to take the issue to court.  

On what the consequences will be

We are a step in the right direction. Although the court has ruled the methodology is illegal and cannot be applied, it has given 12 months for Nersa to be able to implement a new way of determining municipal tariff. This will be effective from years 2024, 2025. What will be an issue now is how we determine the cost of supply. It has to be an efficient cost of supply. So, I can see the next engagement will be around what are considered efficient costs. We are hoping that through engagement with Salga, we’ll be able to come to some sort of agreement that works both for municipalities and for the chambers – for organised business – because we’ve got to have municipalities able to function based on the tariffs they’re awarded. We do not believe electricity tariffs should be spent on subsidising other elements of municipal operations, this money should go to electricity. And then there is a whole discussion about the lack of maintenance in the past. What has happened in the series of bad tariffs is that the backlog in maintenance is now seen as some kind of justifiable cost to add to future tariffs but we have been paying those tariffs all these years. Essentially, we’ve already paid the maintenance for those prior years and we don’t want to have those costs imposed on us again going forward. We need to find a way that we get standardised tariffs across South Africa that will work for electricity supply. And then we look at some creative ways around some of the infrastructure challenges. We’ve got a potential PIP, at home we will be looking at the private sector, possibly funding some of the infrastructure and being paid back through the municipal services bill. We really want to play a constructive role in this space because it’s imperative that municipalities are able to function because they determine the kind of environment we have to work in. It is not an effort to undermine municipalities in any way . It’s to say, let us pay a fair tariff for the electricity service we receive. If we look at the other challenges  we have in a municipal space, how can we creatively find a solution to the challenges that doesn’t involve adding it to a tariff list. 

On their connection to Nelson Mandela Bay business chamber as the two worst metros in the country

Yeah, I think they would. There must be some truth to that. We are both pretty active chambers. And as I say, that’s an important element for us. When  your infrastructure starts failing and it negatively impacts business, this is when business tends to stand up. Perhaps we’ve been ahead of the curve a bit and our businesses have stood up and said, no, something must be done. So, absolutely, there’s some truth to that. We have recently appointed a new municipal manager. I’m cautiously optimistic because some of the stuff I’ve been raising for a very long time is suddenly getting some good attention. I’ve got to say that I am a very frank person, but at the same time, I do recognise that we are able to achieve a lot more if we work together. I think my frustration comes in when I receive, you know, opposition from the municipality to anything that’s even vaguely reasonable. I think, in the past, there were situations where municipal managers were deployed to Msunduzi when it’s been patently clear  their agenda is not to put Msunduzi on the right track. And then you will see my ire for absolute certainty. In this case, I am cautiously optimistic. I’m hoping we at last have got some leadership that will turn Msunduzi into the city it deserves to be. Pietermaritzburg is the capital city of this province, as I’ve said in the past, you know, I love it and I will do whatever I need to do to work with them to achieve that. If they’ll work with me, I will gladly put our resources on the table. The business has invested everything here. This is where our homes and businesses are. And we love it.  

On taking the first steps to make municipalities more efficient 

Yes, we are very pleased with the win. I mean, it is a step in the right direction. We are hoping it’s the start to address some of those difficult issues. You can talk about them until you’re blue in the face and nobody takes any notice because they haven’t had to know. Now, we have to tell you, we have to say we cannot compete as a business paying the tariffs that we pay with all this inefficiency built into the tariffs. You have such different tariffs between municipalities as well that people in the same country, in the same industry, cannot compete. Never mind us trying to be globally competitive. We don’t tolerate inefficiencies in our own businesses; why are we tolerating it in the services provided to us? Where we have no choice, where it is a monopoly, it’s not acceptable. Business has to stand up on these issues so that we are able to address them collectively. I think that’s where chambers are very valuable because no business has to stick their neck out. We stand at the forefront of it and advocate for their interests. I believe it is important for businesses to stand together and they need to stand behind their chambers. 

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