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Eskom’s late tariff submission creates legal problems for municipalities

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Eskom’s late tariff submission creates legal problems for municipalities

South African Local Government Association (Salga) infrastructure services executive director Mthobeli Kolisa discusses the impact Eskom's late tariff increase application has on municipalities. Cameraperson: Nicholas Boyd; Editing: Darlene Creamer (09/06/2009).

9th June 2009

By: Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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A “chaotic and incoherent” approach to tariff increase applications seemed to have become the norm for the electricity sector, the South African Local Government Association (Salga) infrastructure services executive director Mthobeli Kolisa asserted on Tuesday.

Salga joined a chorus of associations and labour unions which were criticising Eskom for its late submission for a 34% interim tariff increase.

Eskom CEO Jacob Maroga, meanwhile, defended its late application, saying that the considerable amount of funds it required and the impact that tariff increases would have on the economy, needed further dialogue, which had taken time.

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Maroga noted that the utility understood the frustration others felt regarding the timelines.

However, the utility has had to consider a number of issues before making an application, he said. These included uncertainties about how much money it could borrow given the economic crisis and also whether it could repay these funds.

Kolisa told the National Energy Regulator of South Africa (Nersa) that Salga could not understand why the power utility had not been able to submit its application to the regulator at an earlier stage.

He added that the utility had delayed its application to the point where statutory timeframes had been ignored and “meaningful” consultation had become “impossible”.

Kolisa stated that the late submission and the anticipated further multiyear price determination tariff increase application, created “substantial practical and legal” problems for municipalities.

He explained that the Municipal Finance Management Act (MFMA) provided that any price adjustment had to be tabled in Parliament before March 15, or the adjustment could not take effect for municipalities in that same year.

Further, the MFMA required that a municipality’s annual budget be approved 30 days before the start of the financial year, which was the end of May.

However, Eskom had only submitted its application to Nersa by early May.

If Nersa’s ruling differed from the anticipated increase in municipal budgets, this caused problems related to budget adjustments, said Kolisa.

Further, while the National Treasury recommended one budget adjustment a year in terms of the MFMA, this did not include adjustments of tariffs. This would compromise the financial viability of municipalities if the increase was more than what was budgeted for, he stated.

Meanwhile, Kolisa said that the former Finance Minister Trevor Manuel had, in 2008, issued notices to exempt municipalities from complying with the budget process requirements of the MFMA.

Not only did this have “substantial adverse” implications for municipalities, but the Nelson Mandela Bay municipality had also obtained legal opinion that it could be unlawful.

There was a “considerable risk” that municipalities could have their tariff approval and budget processes set aside by “aggrieved consumers” on the basis that the notices were unlawful, stated Kolisa.

He appealed to Nersa to consider the legislative compliance regulations to be as important in its tariff increase determination as the price regulation.

Another risk for municipalities was that further “steep increases” in following years could lead to a decline in the level of payment received from consumers, said Kolisa, noting that Salga was concerned about the impact of the 34% increase on the poor, with many already unable to pay for municipal services.

Salga would accept Nersa’s decision if it took into account the parameters envisaged by the National Treasury circular, indicating a 34% nominal increase in tariffs. A higher increase would, however, jeopardise the financial viability of municipalities, he said.

Kolisa also asserted that any further tariff increases during the 2009/10 financial year would be unacceptable.

Meanwhile, he said that it was inexplicable that government and Eskom had not finalised a sustainable pricing and funding plan to secure its required investment yet.

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