Sat. Jan 16th, 2021

Just over 10 000 Soweto households unlawfully overcharged by Eskom

Eskom says it is losing at least R2.5bn in revenue annually due to illegal power connections in Gauteng. Of that, it says, it’s haemorrhaging R3m a day in Soweto alone.

just over 10 000 soweto households unlawfully overcharged by eskom - Just over 10 000 Soweto households unlawfully overcharged by Eskom

Eskom’s huge Soweto debt write-off has triggered questions about the ‘integrity’ of its billing to other clients in arrears.

In the previous financial year, South Africa’s embattled power utility wrote off almost R8 billion of the R18 billion it claimed it was owed by households in Soweto, Moneyweb reports.

This largely consists of interest that exceeded the principal debt.

In terms of the common law in duplum rule it is unlawful for a creditor to charge interest that amounts to more than the original debt, but that is exactly what Eskom did.

Presenting its annual financial statements for year ended March 31, 2020, Eskom disclosed that it wrote off “in duplum components of R7.9 billion” from the R18.2 billion that small power users (SPUs) in Soweto owed it at the end of the 2019 financial year.

Eskom later explained that R2.6 billion of the amount written off was debt that had prescribed and the balance (R5.3 billion) was non-compliant with the in duplum rule.

These amounts related to 10 166 households that buy their electricity directly from Eskom and had been accumulated over a 15 year period.

Direct clients

Soweto’s debt load has been a major thorn in the side of the embattled power utility.

About 200,000 Soweto residents are direct clients of Eskom, the Daily Maverick reported, which means the City of Johannesburg does not collect electricity tariffs from these residents – Eskom does.

Eskom’s senior manager for customer services in Gauteng, Daphne Mokwena, told the media last month that Soweto residents owed Eskom R7.8-billion for electricity, which excluded the R5-billion interest that had accumulated.

Eskom normally charges interest at the prime lending rate plus 5%.

It says it was aware of the excess interest, “but because of customers continuing not paying their debt, a strategy to stop the capital debt from growing needed to be implemented first to avoid continual in-duplum and interest reversals or write offs.

Prepaid meters

In an effort to get more residents to pay their bills, Eskom said it’s installing prepaid meters in households.

Mokwena told the Daily Maverick that nearly 66,000 of these meters had been installed.

This write-off is only the beginning, Eskom says, since the power utility is dealing with the matter “in manageable batches.”

“This year we still need to convert about 17,500 meters to prepaid. The remaining installations of about 52,000 will be done in the next two years.”

It has also adjusted is billing programme to prevent a recurrence.

At the end of March Soweto’s arrear debt amounted to R12.8 billion. The good news is that the payment rate in Soweto has increased from 12.5% to 20.7%.

Eskom’s integrity in question

This huge write-off, however, has raised questions about the integrity of Eskom’s bills to other clients who have fallen in arrears.

The Department of Public Enterprises reported to parliament that municipal arrear debt stood at R31 billion on July 1 this year.

During a recent meeting of energy regulator NERSA’s electricity sub-committee, officials and regulator members said the biggest portion of municipal arrear debt to Eskom consists of interest and penalties.

Full-time NERSA member Nomfundo Maseti said Eskom charges compound interest which makes it very difficult for municipalities to pay their debt and in turn leads to higher tariffs.

Untitled 555x265 - Just over 10 000 Soweto households unlawfully overcharged by Eskom
Source:Eskom

Eskom claims, for example, that the Maluti-A-Phofung municipality in Harrismith owes it R5.4 billion, of which R1.5 billion is interest.

It is unclear how much of the amount owed is penalties.

Huge penalties

Municipalities incur huge penalties if they exceed the notified maximum demand (NMD) agreed upon with Eskom.

NMD is the half-hour of highest demand during the month and Eskom plans its infrastructure according to that. If a user exceeds their NMD, it poses a risk to the network.

Large users, like municipalities, are expected to manage their NMD, but many municipalities fail to do that, claiming that illegal connections and electricity theft makes it impossible to stick to the agreed limit.

Eskom has for many years allowed municipalities to exceed their NMD and merely charged more and bigger penalties and Maseti questioned during the meeting whether this serves as a revenue stream for Eskom.

In recent months Eskom has instituted “load reduction” at connection points where the NMD is regularly exceeded, and it only supplies what it has been contracted to supply.

New guidelines

Nersa, meanwhile, has been working on a set of new NMD rules and has published new draft proposals for public comment.

During the meeting, Maseti proposed that the current set of rules, with its punitive penalty regime, be suspended until the new directives have been finalised.

She further suggested that the new measures also make provision for penalties to be imposed on Eskom when the entity fails to supply the agreed upon demand. However, no decision was taken in this regard.

Eskom says NMD penalties incurred by municipalities so far this year amount to R200 million. It is not clear though how many municipalities have in fact been penalised.

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