www.salga.org.za
Progress on SALGA & Eskom
Partnering Agreement
&
Signing and Implementation of SDA
Between Eskom and Municipalities
Nhlanhla Ngidi :
Municipal Infrastructure and Services
: Electricity and Energy
1
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CONTENT
1.
2.
Progress made on SALGA/ Eskom Partnering Agreement
Progress made on Credit Control and Surcharges in
Eskom Supply Areas
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1.
Progress made on SALGA/
Eskom Partnering Agreement
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Background
• The SALGA/ Eskom partnering agreement officially
signed at the SALGA National Executive Committee
(NEC) Lekgotla 29th - 30th October 2014
• Metro Mayors, the Deputy Speaker of the National
Assembly, Deputy Ministers of Cooperative Governance
and Traditional Affairs (CoGTA), as well as Senior Eskom
Executives and Board members attended this session
• As an effort to implement the Partnering Agreement, the
two parties have established a Programme Management
Office (PMO) comprising SALGA, Eskom and municipal
officials to operationalize the work-plans.
• In terms of skills training, municipalities will benefit from
Eskom’s College and Leadership Institute.
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Objectives
• SALGA and Eskom have committed to engage in a
process of active partnering for the purpose of:
– Establishing a cooperative and collaborative working
relationship;
– Bringing about the long term sustainability of electricity
reticulation; and
– Addressing both electricity distribution industry issues
in general, and the specific operational challenges
impacting delivery of electricity to end users.
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Identified training
Requirements
• It is envisaged that the Training Programme will in the
main cover the following critical areas:
– Tariff Setting, Determination and Billing,
– Credit Control and Debt Management;
– Financial Management
– Customer Services and Management;
– Network Planning, Design, Optimization and
Strengthening (There is a lack of Network Planners and
Designers in Municipalities);
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Identified training
Requirements Cont:
– Electrical Engineering Protection Philosophies;
– Maintenance Planning, Plant Management, Coordination
and Execution
– HV Regulations;
– Quality of Service;
– Quality of Supply (Power Quality Management);
– Quality Management;
– Engineering Project Management (At all levels from
Planning to Execution).
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Envisaged Outputs
–
–
–
–
Provision of technical training to municipal staff officials;
Building of skills capacitation;
Enable Improved municipal Revenue collection;
Proper management of non-technical losses through
proper meter audits; and
– Identification of illegal connections and the reduction of
unsafe installations
– Moving towards tariffs that are cost reflective
– Fewer tariff structures between all municipalities
(Harmonization)
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Selection of Course
Recipients
• (36) municipalities identified for the roll-out
SALGA/Eskom Municipal Training Programme
of
the
• To be conducted through the Eskom Leadership Academy
(EAL).
• Four municipalities per province (for all provinces)
• 36 is a pilot number to test if this can be rolled out at a
biggest scale
• Duration – To Start January 2016
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Progress To Date
•
The Eskom Challenges:
– One of the key issues facing Eskom is the long outstanding
municipal debt which amounts to well over R9 billion.
– Municipal arrear debt is spiraling out of control and has
impacted Eskom’s investment rating and ability to remain
sustainable.
– Municipalities make up about 42% of Eskom’s electricity sales.
– Municipal arrear debt has increased from R2,3 billion in March
2014 to R4,3 billion in March 2015.
– The top 20 defaulting municipalities make up approx. 80% of
the outstanding debt.
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Contributing Factors
to Municipal Debt
Cash Flow
Funding
Tariffs
• Dependency on grants from National Treasury unding to
settle outstanding municipal debt.
• Misalignment of tariffs (Eskom vs. Municipality).
• Municipality tariff structure not always cost reflective
• Inadequate capacity within municipalities regarding
electricity tariffs practises and philosophies
Root causes are systemic in nature and cannot be tackled alone
by Eskom to reduce municipal debt
Municipal
Arrear Debt
Revenue
Management
•
Skills
competency
• Inadequate skills/ resources in Municipalities
• Separation of financial and technical duties within
Municipalities,
• High turnover in management and key staff and prolonged
acting positions in Municipalities
• Poor management of revenue management processes
• Municipal Billing system not always functional
• Losses and ineffective revenue collection.
• Implementation of credit management policies/ procedures
• Penalties when exceeding Notified Maximum Demand
(NMD) due to bad load management
• Cash flow forecasting and management
• Municipality electricity revenue not ring-fenced
• Ineffective sales forecasting and budgeting processes
• Eskom billing dates vs Municipal billing dates to their
customers
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Therefore it has been
agreed that
• Key Focus Areas for now will be:
– Revenue Improvement
– Billing Management
– Credit Control and Debt Management
– Customer Database Management
– Skills Development at a Management Level
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Proposed Priority
Focus Areas
1.Revenue Improvement
2.Credit Control and Debt Management
The details of the above focus areas include:
No Credit Management
.
Debt Management
Tariffs
1.
Customer Segmentation
Defaulting Customers
Tariffs Types per Customer
Segment
2.
Meter Management
Credit Control
Implementation
Municipal Tariffs
3.
Measurement and Billing
Financial Risk
Assessment
Management of Notified
Maximum Demand
4.
Energy Losses
Management
Cash Flows
Legal and Regulation
5.
Performance Management
Performance
Management
Capacity and Competency
Development
6.
Capacity and Competency
Development
Policies and by-laws
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2.
Progress made on Credit Control
and Surcharges in Eskom Supply
Areas
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25 – 27 August NCOP
Resolutions
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What the law says
• The Constitution assigns municipalities executive authority
and right to administer electricity reticulation within their
municipal area
• The Systems Act authorises municipalities to provide electricity
reticulation themselves (through an internal mechanism) or
through an external mechanism – such as ESKOM – by
entering into a service delivery agreement (SDA)
Municipality
Service delivery
agreement
16
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Municipalities have executive
authority for electricity reticulation
Municipalities also have the authority to:
• Adopt bylaws
• Give effect to their tariff policy
• Impose surcharges on service fees where services
are provided on behalf of the municipality
• Exercise their credit control policy (disconnect
services where there are arrears)
This authority provides municipalities with a firm base
for generating revenue from electricity user fees
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But municipalities’ constitutional
right is currently restricted …
• No service delivery agreement as required by the Local
Government Systems Act exists between municipalities
and Eskom - this is inconsistent with the Constitution and
must be corrected
• Such an agreement would regulate the distribution and
sale of electricity by Eskom within municipal areas of
jurisdiction
• The constitutional powers of local government cannot be
removed or amended by national legislation (such as ERA)
• NERSA also has no authority to override the provisions of
the Systems Act
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Lack of SDAs = loss of
regulatory and financial control
The lack of service delivery agreements with Eskom has
resulted in municipalities losing regulatory and financial control over
electricity reticulation – to the prejudice of many of their residents
• Surcharges cannot be charged in Eskom supply areas - thus
municipal supply areas subsidise services for residents and
businesses in Eskom supply areas
• There is a lack of tariff parity – where tariffs in the municipal
supply areas include not only the costs of purchasing electricity
from Eskom, but also additional costs associated with the service
• Credit control policies cannot be implemented in Eskom supply
areas – and thus revenue collection in these areas is lower
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NERSA License Condition
• Eskom reticulates electricity to its customers entirely on the
strength of the licence issued by NERSA
• The licence issued to ESKOM does not require Eskom to
provide the service in terms of a service delivery agreement
• In the absence of an SDA as required by the Systems Act,
the licence is unconstitutional and defective
• NERSA is empowered by the Electricity Regulation Act to
issue an electricity distribution license with conditions
• It is also empowered to amend conditions if necessary –
the licence conditions need to include the requirement of an
SDA
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SDA would facilitate
• Expenditure more fairly distributed over all consumers.
• All consumers contributing to all services rendered by a
municipality.
• Improved credit control of municipal services
• Reduction of the massive R100billion municipal debt
• Reduction of the debt owed to Eskom
• Greater financial sustainability for municipalities and the
electricity industry
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Remedies SALGA seeks
• We want to achieve the outcome required by the
Constitution, the Municipal Systems Act, the PFMA and
the ERA which require a service delivery agreement
between municipalities and Eskom
• The service provided by Eskom within a municipal area
would thus be performed on behalf of the municipality
concerned

Municipality
Service delivery
agreement
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Remedies SALGA seeks
We are seeking solutions through cooperative governance :
• Requesting ESKOM to sign a SDA to ensure compliance
with the provisions of the PFMA, the Municipal Systems
Act and other applicable legislation, including the ERA
• Requesting NERSA to:
– enforce the regulatory framework in the ERA,
including compliance with the Systems Act
– attach a condition to Eskom’s licence, that where
Eskom reticulates electricity within a municipal area, it
may only do so in terms of a service delivery
agreement with that municipality
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NCOP RESOLUTIONS 25-27
AUGUST
Action to be taken
Resolution
1.
2.
The amendment of the provisions of section 76 and 1.
SALGA to make specific proposals to
78 of the Systems Act to simplify the process
COGTA
required to assess the most appropriate service 2.
COGTA to prepare draft amendments
provider to deliver municipal services
That NERSA:
3.
NCOP to do oversight
4.
NERSA and Department of Energy to
a. enforce the regulatory framework in the ERA,
recognise the requirements of the Systems
including compliance with the Systems Act
Act
b. attach a condition to Eskom’s reticulation
5.
licence to determine that Eskom may only
reticulate electricity within a municipal area in
c. That
ESKOM
commit
6.
support
all
municipalities in credit control and to 24
sign
Energy
to
ensure
ESKOM to commit to assist municipalities
with debt collection
7.
to
of
recommendation is implemented
terms of a service delivery agreement with the
relevant municipality
Department
COGTA and Department of Energy to
ensure implementation
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16 September 2015
Working Session
Resolutions
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16 September Working Session
between all Stakeholders
• Meeting took place at SALGA with the attendance of
SALGA, AMEU, DPE, NERSA, ESKOM and Treasury
• Aimed specifically concentrating in identifying workable
solutions to addressing the two questions below:
• What mechanisms or arrangements need to be put in
place so that municipalities can exercise their credit
control policies in Eskom supply areas?
• How can municipalities bill the ‘surcharge’ to those
consumers who fall within the Eskom supply area?
26
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AMEU Presented its Position
Paper
Highlights
• The concerns from Municipalities regarding the issue at
hand include the following: – Is Eskom engaging with municipalities in good faith?
– Do all stakeholders have a full understanding of the
constitutional rights of municipalities as electricity
service authorities and the legal requirements arising
from these rights?
– What is the best way to resolve the impasse between
Eskom and municipalities in the best interests of the
industry, the economy and the country?
– Who is benefiting most/least
from the current
27
situation?
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AMEU Presented its Position
Paper
The AMEU position paper proposed the following:-
• NERSA to include an SDA with municipalities as a
prerequisite part of the Eskom tariff approval.
• Start the process of consolidation of electricity service
delivery within the municipal area of jurisdiction (with a
joint project team).
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Eskom Presented its Position
An SDA Unintended Consequences
• Legislative and statutory implications:
– Changes to Eskom Condition of License will be
required
– All Eskom Supply agreements will have to be changed
– Failure could lead to challenges in terms of Consumer
Protection Act
– Increased litigation- disconnections will be challengedwho will run with litigation and cover legal expenses ?
29
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Eskom Presented its Position
An SDA Unintended Concequences
• Operational Implications (Cost, Time & Revenue)
– A magnitude of new tariffs since each municipality might
require different charges and levies
– IT-systems to accommodate all of these different tariffs
– Loss of Revenue for disconnecting customers for nonelectricity related debt
– Potential escalation in Eskom Debt levels
– Potential impact on Eskom Credit Ratings
– Cost and the compensation there off by Municipalities
(connection and disconnection)
– Budget and planning (and subsequent price increases) will
30
be impacted/dictated by municipal council decisions
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Eskom Presented its Position
An SDA Unintended Concequences
• Reputation and Image
– Customers response to paying an additional levy on
top of the perceived high prices
• Other Stakeholder Involvement:
– NERSA will have to approve all these various tariffs
– NERSA reputation at stake when they now allow
additional charges onto the Eskom customers
– Public consultation process to be followed
• Impact on the economy if it is additional revenue to
municipalities – inefficient costs
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Eskom Presented its Position
Eskom’s Conclusion
presentation was:
and
Way
Forward
on
their
• Credit control measures and raising surcharges on
behalf of municipalities may not be possible;
• The unintended consequences will need to be reviewed
in the interest of the customer and the country at large;
and
• Follow up conversations will be needed with critical
stakeholders
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Resolutions of the Session
were:
• Two (2) Work Streams will be formed to deal with Legal
and Technical issues on credit control, surcharges and
SDAs. National treasury will be responsible for this action.
• A set of principles on how to address the challenges
facing the EDI will be developed as part of this process.
National treasury will be responsible for this action.
• It was agreed that National Treasury will provide
leadership in terms of the challenges raised terms of
Levying of Surcharges, Credit Control & Debt
Management, and Service Delivery Agreements (SDA’s).
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Resolutions of the Session
were:
• National Treasury will develop Terms of Reference
(ToR’s) to inform the different Work Streams that will
examine all issues and come up with an Action Plan to
resolve the EDI challenges. National treasury will be
responsible for this action.
• NERSA to provide Guidelines on Regulatory matters.
• Cogta to conduct further research and discuss the legal
interpretation of the all applicable pieces of legislations.
• COGTA to lead a process to address the legislative
issues so that government provides leadership on the
interpretation thereof.
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Million Dollar Question?
If SDA can be signed tomorrow, how
are you as a municipality going to
implement it?
How are you going to levy surcharges
in Eskom Areas & How do you see
Eskom including this in its business
model
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SHO