Francesca Visage | Jun 22, 2022

Court stops Eskom from withdrawing funds from Renosterberg Local Municipality’s bank account

The issue of municipal debt to Eskom is an ongoing concern as noted earlier in the Bulletin. The MEC: Northern Cape Provincial Government: Department of Cooperative Governance and Traditional Affairs v The Renosterberg Local Municipality forms part of a series of cases that attempts to navigate the issue. While Eskom is permitted to collect its dues from municipalities, it may not do so in a way that significantly impairs a municipality’s ability to operate and deliver services to its citizens.

Background to the case

In 2021, the Court ordered Renosterberg Local Municipality to pay its outstanding debts to Eskom. The Municipality failed to do so, and Eskom obtained a Writ of Execution which enabled the power utility to access the Municipality’s bank account to make payments to itself. The Northern Cape MEC of Cooperative Governance was aggrieved by  Eskom’s conduct. The MEC was of the view that the matter between the Municipality and Eskom could be better resolved following intergovernmental dispute resolution mechanisms in terms of the Intergovernmental Relations Framework Act. The Act provides a dispute resolution process that avoids court proceedings, promotes good relations between organs of the state and is cognisant of policy implications in the final decision reached between these organs. The MEC applied for a court order directing the Municipality to declare a formal intergovernmental dispute with Eskom.

The MEC also wanted Eskom to agree not to re-issue a writ of execution after the first one lapsed. Eskom was not in agreement and issued a second writ of execution. It also continued to withdraw funds from the Municipality’s bank account, including grants from the National Treasury meant to fund specific municipal services and operations. Following another withdrawal by Eskom in April 2022, the MEC launched an application for an interdict stopping Eskom from withdrawing money from the Municipality’s bank account. The South African Municipal Workers Union (SAMW’) also joined the application. SAMWU represents the interests of the Municipality’s employees, by among other ways, ensuring that its members have access to a stable and well-functioning workplace.

Arguments of the parties

Certain requirements must be met for an interim interdict to be granted namely that the applicant has an apparent right, there is a reasonable possibility of harm being done to the right, there is no other appropriate remedy, and the balance of convenience is in favour of the applicant. The main question, in this case, was whether the MEC and SAMWU have a right that could be affected by Eskom’s actions.

The MEC claimed that they had an apparent right flowing from the constitutional obligation on provinces to supervise municipalities. The MEC  further stated that this right empowers him to intervene where the municipality’s operations are unduly impaired. Finally, the  MEC contended that Eskom’s continued withdrawals go against public interests as it has a severe impact on service delivery to the community. SAMWU argued that it has an apparent right to ensure that the payment of salaries to municipal workers is not disrupted by Eskom’s withdrawal of municipal funds.

Eskom argued that it has engaged the municipality, the MEC and other stakeholders several times, in order to find a solution for the outstanding debts. Eskom relied on the previous court judgment to show that it has a right to recover the debts and should be allowed to do so by any means necessary, as permitted by the law.

The decision of the Court

The Court started by examining the role and obligations of provincial governments towards municipalities. Local government is an autonomous sphere of government, but the provincial government still has an obligation to support and supervise municipalities. The Mogalakwena Local Municipality case confirmed that provincial governments have a duty to ensure that municipalities adhere to the Constitution and any applicable legislation. This duty on the provincial government confers a right to the MEC to ensure that the municipality has utilised all available mechanisms to resolve the issue with Eskom. Additionally, the MEC’s duty to ensure that basic services are delivered to citizens strengthens this right. The Court also recognised that SAMWU has an apparent right to ensure that the Municipality explore all legally available avenues to resolve the issue with Eskom, especially those that would not have as much of a severe impact on the operations of the Municipality.

The Court recognised that Eskom has a right to recover outstanding debts and is indeed entitled to take steps to do so. Yet, the significant impact of Eskom’s withdrawals, from the Municipality’s bank account, on service delivery to the community as well as the general operation of the municipality could not be ignored. The Court also acknowledged that the MEC and SAMWU did not seek to undermine Eskom’s right to recover the municipality’s debt in its entirety and only sought to stop Eskom from accessing the municipality’s bank account. Since the requirements for an interdict were met, the Court granted an interdict preventing Eskom from making further withdrawals from the municipality’s bank account.

Commentary

This case highlights the difficulties that arise where there is a conflict between different organs of state. On the one hand, Eskom, as a creditor, has the right to demand payment from its debtors, in this case, a municipality. Eskom also has a right to approach the court to enforce such a right. It is also significant that Eskom is a public entity and requires funds to generate electricity. Yet, the impact of Eskom’s actions on citizens must also be considered. When Eskom choose to stop supplying electricity to municipalities that have large outstanding accounts, citizens' right to electricity is impeded. Where Eskom take drastic steps to secure payment of municipalities’ debts, they may have a severe impact on a municipality’s ability to operate efficiently.

This matter will be examined in more detail when the MEC’s main application is heard. Pending the outcome of that case, this case supports the trend where courts encourage Eskom to make use of IGR structures and mechanisms in resolving municipal debt problems. It does so by highlighting the complex interests that arise in such cases. In conclusion and in line with the principle of cooperative governance, Eskom should exhaust intergovernmental dispute resolution mechanisms provided for in the Intergovernmental Relations Framework Act before implementing any drastic actions that may adversely affect a municipality’s ability to deliver services.

 

by Francesca Visage, LLM Student: Dullah Omar Institute

 

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