The City of Joburg (CoJ) is moving forward with its plans to take over electricity distribution in areas within its jurisdiction currently served by Eskom, despite the challenges facing its electricity utility City Power.
Eskom currently handles distribution for 38% of the CoJ’s area of jurisdiction, including Sandton, Bryanston, Waterfall, Fourways, Sunninghill, Diepsloot, Cosmo City, Ivory Park, Orange Farm and parts of Soweto.
A motion proposed by Action SA on the matter, and adopted by council last week, called for a report within 100 days about the impact of such a step, among other things.
The aim is to protect Joburg residents against load shedding and load reduction and ensure stable electricity supply.
The motion specifically mentions the “poor service” provided by Eskom to especially Soweto residents, which is outside the control of the council.
“Our residents are tired of Eskom’s service delivery failures. While we do not condone the [violence] of recent community protests against Eskom’s service delivery efforts, we believe it illustrates that we have the responsibility towards our residents to improve the quality of service they receive,” the motion states.
The city hopes to improve power supply by extending its power purchase agreement with the privately-owned Kelvin Power Station and concluding similar agreements with other independent power producers (IPPs).
It is clear the city is not prepared to take over any of the historical debt owed to Eskom by Soweto residents. It will also need additional financial support from National Treasury for the extra indigent households that will come with the incorporation of these areas.
This comes as commercial and industrial customers of City Power await a court ruling in their application to have energy regulator Nersa’s decision to approve City Power’s 2019/20 tariff reviewed and set aside for being unlawful.
Nersa, the City of Joburg and City Power opposed the application that was heard in the high court last month.
Business groupings further warned against increased tariffs and giving more responsibility to City Power while it cannot even fulfil its current licence conditions.
David Mertens, who speaks on electricity matters for the Nelson Mandela Bay Business Chamber and is well-informed about the issues in Joburg, says in principle the city’s plans are sound.
“The Constitution empowers the municipalities to reticulate electricity within their borders. From that perspective, the base of the motion is justifiable. It addresses the underlying discrimination between consumers supplied by Eskom direct [versus] municipal,” he says.
“Given that municipalities can levy surcharges on the services they offer, there is [currently] discrimination in tax regimes.”
Steep increases likely for business and industry
Moneyweb earlier reported that while small residential customers may benefit from somewhat lower tariffs when moving from Eskom to City Power supply, the electricity bills of businesses and industry will increase sharply.
The Association of South African Chambers (Asac) calculated that a factory running 24 hours a day, seven days a week and supplied directly by Eskom was paying R46 million in 2020. If the same factory was situated in a City Power distribution area, its cost would have amounted to R71 million for the same period.
The motion is quiet about the impact on these customers.
Mertens points out that the argument against tariff discrimination is not used in the motion at all.
“Rather, the motion … refers to Eskom’s incompetence and the negative impact it is said to have on the residents. Facts to support these arguments are very poorly presented in this motion,” he says.
“Of course, Eskom causes load shedding, but surely that will not change as a result of implementing this motion. Of course, CoJ can try to get supply from IPPs, but that can be done under the current circumstances as well.”
No ‘credible plans’
He adds that the motion is not supported by any credible plans to show that City Power is going to deliver anything positive to the citizens.
“The motion is hence vested in politicking and who can benefit from the lucrative business of electricity distribution, rather than what solution will serve the citizens best,” says Mertens.
He says the City of Joburg and City Power “have been pathetic when it comes to performance in the electricity distribution function”.
Total electricity losses, which should be at a level of 10% maximum, hover around 30% and have increased over the last period at a huge cost and makes the electricity distribution function unsustainable, he says.
To compensate for these losses, the city charges business and industry the highest tariffs in the country, and as such is chasing away these consumers. This creates a vicious cycle of disinvestment and contributes to out-of-control unemployment rates, Mertens says.
He says City Power is already in violation of various conditions given the electricity losses alone.
“City Power should hence only be allowed to integrate new areas into its distribution network when it can demonstrate that it complies with its licence conditions,” he says.
“It should furthermore demonstrate that the tariffs that it will be charging reflect efficient cost and reasonable returns only and do not equate to extortion [per the current situation].”
Neil Gopal, CEO of the South African Property Owners Association, says the association agrees that the reliance on Eskom must be revisited, but would advise that businesses do not become overburdened by any price increases annually to make up for any outstanding debt by residents.
“We will await the results of this study and hope that the ultimate plan to ensure Joburg has stable and reliable electricity supply [will] pan out successfully.”