High energy users fighting for fair deal
Municipal electricity tariffs
GIVEN the content of the article published in your paper last Monday, the High Energy User Group considers it necessary to clarify some points. The discussion is obviously about R220-million in so called “unpaid” electricity bills.
For us as high energy users, the disputed amounts being charged by the NMBM amount to an unlawful and undisclosed form of taxation. To that effect, there is a pending court case between our companies on the one side and Nersa (the National Energy Regulator of South Africa) and the NMBM on the other side. It needs to be noted that the concerned companies do pay their electricity bills, but only omit the amount which is deemed to be unlawful.
The situation of the municipality overcharging through electricity tariffs has dire consequences for the viability of industry, specifically for those members of industry for which electricity is a high proportion of overall costs.
As we all know, industry is the crucial economic sector in this city and the well-being of most of the population depends on it. Without a healthy industrial base, unemployment will only deteriorate further and the situation will get even worse than it already is. Our actions in relation to the tariffs are crucial to the survival of the industrial base in this city and to the stability and creation of employment.
Electricity tariffs in South Africa were some of the most competitive in the world up to about 2008. This had been very beneficial to the development of industry and resulted in investment and job creation. Double- digit increases from 2008 onwards brought us to a situation where, within a few years, our electricity tariffs became uncompetitive on a global scale.
The results are obvious and regrettable – reduced industrial activity and a very depressed job market. We now all know that industrial electricity usage in South Africa has dramatically reduced from the levels 10 years ago as the shrinking industry struggles to afford the tariffs. This decline is ongoing.
After the fourth consecutive increase above 20% in 2011, we started engaging with the NMBM as a group of companies. We effectively needed to fight for our survival. This engagement has unfortunately never resulted in cost-reflective tariffs for industry and the situation remains unresolved.
It also became clear to us that the NMBM was extracting significant income from the electricity distribution, income which was then being used for purposes irrelevant to the electricity supply function of the municipality. While Eskom is increasing its electricity tariffs well above inflation year after year, the municipality consistently adds a proportional “mark-up”, with most of this money disappearing into the municipal coffers.
We also noted that many customers in this country, supplied by Eskom directly rather than the municipalities, continued to enjoy significantly lower tariffs. In many cases, the Eskom tariffs are 30% lower than municipal tariffs.
This confirmed the situation that electricity consumers were treated differently only because of their geographic location and that the municipalities were charging significantly more for exactly the same service.
Our conclusion was that the municipal electricity tariffs are unlawful, as electricity tariffs should only be a reflection of the cost the electricity providers incur. There is no provision in law to allow municipalities to charge unlimited mark-ups, or for income from electricity tariffs to be randomly transferred to the general revenue stream of the municipality.
The contributing electricity users are effectively being abused to subsidise the municipality. Besides this being unlawful, the municipality compromises the well-being of the economy and adds to plant closures and job losses! To make matters worse, instead of using the electricity revenue to maintain the electricity infrastructure, the available funds are simply disappearing while the infrastructure is being neglected.
The latest audited statements show the municipality is well over R600-million in arrears with its electricity-related maintenance programmes. No wonder power dips and failing sub-stations are the order of the day! The dilapidated infrastructure is equally adding cost to our businesses. Nevertheless, the electricity users did pay to maintain and upgrade the infrastructure.
Nersa has the last say when it comes to electricity tariffs. They themselves repeatedly stated that the mark-up of the municipal electricity tariffs had grown out of hand. Unfortunately, they allowed this situation to continue.
Despite ongoing attempts by the high energy users to engage the municipality and Nersa constructively, the NMBM simply considered their short-term interest and continued piling unlawful mark-ups onto the industrial electricity tariffs. Our only option was then to raise the pressure and to challenge them in court. Our group of companies won a similar challenge in relation to the 2016/17 Eskom tariff increases in the Pretoria High Court in August. Challenges of this nature are unfortunately required to ensure the users get a fair deal when it comes to regulated tariffs.
Your article stated that we had reached a deadlock in the discussions with the NMBM. We do not wish to believe that this is correct. We trust that further engagement will finally resolve this situation as it is in everybody’s interest to do so.
Competitive electricity tariffs are crucial in growing our existing industrial base and in attracting new investment. The current hurdles to job creation and economic development must be removed and a responsible and well-run municipality will create an enabling environment in that respect. We are looking forward to constructive discussions and, eventually, a solution to this problem which has remained unresolved for way too long.