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More woes ahead for Eskom

15 September 2020

In between the rotational load shedding the country is experiencing, recent media reports that Eskom has resorted to “load reduction” have also come to the fore. Load reduction involves switching off power in areas where illegal connections overload and damage its infrastructure. Hence, through load reduction the power utility endeavours to protect the grid and reduce the usage during peak hours.

A recent judgment inVaal River Development Association (Pty) Ltd v Eskom Holdings SOC Ltd and Others; Lekwa Rate Payers Association NPC v Eskom Holdings SOC Ltd and Others[1] handed down in the North Gauteng High Court by acting judge A Millar, is of particular interest as it brings to the fore another avenue the embattled power utility is seeking to rely on in order to curb its already constrained supply.

The two matters were heard at the same time and the Court granted both urgent applications brought by representative bodies of local businesses – Vaal River Development Association (Pty) Ltd (Ngwathe Municipality in the Free State) and Lekwa Rate Payers Association NPC (Lekwa Municipality in Mpumalanga).

Eskom, in reliance of the provisions of the bulk electricity supply agreement entered into with both municipalities had taken steps around June/July of this year to reduce the supply of electricity to the Notified Maximum Demand (NMD) as stipulated in the agreements. NERSA rules describe NMD as “the contractual value of demand which binds Eskom and the customer.” Eskom is required to provide the contracted NMD and where customers exceed the NMD, a NMD penalty is imposed.

The NMD for Ngwathe per the September 2008 agreement was 24 300kVA and in respect of Lekwa per the January 1981 agreement was 22 260 kVA – Lekwa being increased to 55 000 kVA by 2010.  Despite these limitations, and no further increases since 2008 and 2010 respectively, Eskom continued to supply electricity in excess of the NMD to both municipalities for an extended period of time and only sought to rely on the NMD provision earlier this year.

The impact of the adherence to the NMD became apparent as business gradually resumed during the reduced risk levels of the national lockdown.  Apart from the expected adverse effects on the community and business at large owing to the reduction in electricity supply, the Ngwathe Municipality experienced raw sewage of some two hundred thousand residents flowing into the Vaal River at a point where the municipality extracted drinking water which in turn resulted in the water being impure and leading to increased illness and disease. The Lekwa Municipality suffered similar adverse effects being unable to meet the demands of the industrial sector which includes poultry farming, colliery and transportation of coal.

Eskom opposed the applications on the basis that its obligation was to supply electricity in terms of the contractual arrangements in place with the respective municipalities – hence it was only required to provide such supply as per the agreements. Eskom further argued that as the contracts were between itself and the municipalities, the applicants’ rights would need to be enforced against the municipality. It further stated that it was the municipality that was failing to discharge its constitutional mandate to its residents.

The Court however found that Eskom’s actions as a State-Owned Enterprise operating a monopoly on the supply of electricity, in enforcing the NMD, amounted to an infringement of the rights of the residents of both municipalities. The learned judge stated “It seems to me at the very least that enjoying a clear right to be supplied with electricity, the right to be supplied with sufficient electricity to meet the most basic threshold of the individual rights in the bill of rights must at least be a prima facie right. To find otherwise would render those rights and the obligations of the State and its organs – which includes Eskom – to fulfil them, nugatory”.

The Court further found that the debt levels of the municipalities and the period that Eskom allowed them to exceed the NMD, without imposing penalties, counters any prejudice that Eskom may suffer as opposed to the prejudice suffered by the residents of these two municipalities – the Court therefore held that the balance of convenience favoured the applicants.

Eskom was ordered to immediately restore full maximum electricity supply to several areas in the Free State province and Mpumalanga province. Judge Millar poignantly stated that as municipalities (and mostly insolvent ones at that) are being saddled with NMD penalties and interest charges by Eskom, their debt burden increases exponentially which leaves them with no other recourse than to approach the courts for relief.

It is abundantly clear that the embattled state utility will most certainly be seeing several court challenges similar to this, as frustrated businesses are now at a breaking point. Eskom’s needs to come up with a new strategy to manage its constrained resources as its actions in curtailing supply and its argument that it has no obligation to the end-users by laying blame with the municipality,  is failing dismally.

[1]Vaal River Development Association (Pty) Ltd v Eskom Holdings SOC Ltd and Others; Lekwa Rate Payers Association NPC v Eskom Holdings SOC Ltd and Others (31813/20) [2020] ZAGPPHC 429 

Author: Arvitha Singh, Associate