1. Sicelo Xulu November 2014

2. In areas where Eskom is the licensed electricity distributor, there are no Service Delivery Agreements (SDAs) between Eskom (service provider) and municipalities (service authorities) in terms of the Municipal Systems Act 32 of 1998. This renders the service authority less effective due to Loss of revenueLack of credit controlPublic lighting issuesIDP alignment issuesInhibited information sharingConstrained economies of scaleDisparate service and tariffs What is the best way to resolve the impasse between Eskom and municipalities?

3.  The Municipal Systems Act provides for municipalities (service authorities) to engage or contract external parties (service providers)– it demands a Service Delivery Agreement (SDA) between the municipality and the service provider  Eskom has resisted efforts to enter into an SDA with municipalities on the basis that it is licensed by NERSA to distribute in specified areas  NERSA issues a distributor license to Eskom without a Municipal Council Section 78 decision regarding service delivery mechanisms in the municipal area or entering into an SDA with the municipality  Engagement with Eskom on concluding an SDA subsequent to the 2011 SALGA National Conference has failed to move the position forward (despite agreement in principle by the CEOs of Eskom and SALGA)  Approaches by SALGA and some of the Metro’s regarding consolidation of areas of supply have similarly met with little success

4. 20132014 February – Report on SALGA/Eskom engagements on draft EDI Framework Agreement where Eskom the service provider March – half day workshop re content and structure of AMEU position paper April – first draft Position Paper on Alternative Approach to Restructuring of EDI: Output Two May National Stakeholder Workshop re Alternative Approach to Restructuring of EDI SALGA draft SDA to munics for comment July CoJ/Eskom meeting Feasibility Consolidation of Service Delivery in CoJ SALGA Position Paper Proposed Approach to Restructuring of EDI July – SALGA/NERSA meeting Lobby support for SDA’s where Eskom service provider Reform of EDI September – Strategic Session to expedite roadmap approach to National Electricity Framework Agreement and MOU between SALGA and Eskom September – legal opinion received (MHA) November SALGA National member Assembly – scheduled sign of MOU does NOT take place SALGA/NERSA/DoE discussion of way forward and comments of Draft SALGA/Eskom Electricity Distribution Framework Agreement Local Government Position Paper presentation (AMEU Technical Committee) November – full presentation on SALGA/Eskom Position Paper (Technical Committee Meeting) Eskom and SALGA CEO’s agree in principal that SDA(s) need(s) to be put in place SALGA /Eskom legal teams to agree on content of MOU and Framework Agreement Legal teams to chart way forward and SALGA to engage relevant Ministers Eskom requests more legal consultation AMEU takes decision to adopt a two pronged approach – push for SDA whilst collaborating to achieve consolidation of areas of supply

5.  Is Eskom engaging in good faith?  Is it fair to expect Eskom to give up its market share and dominance over municipalities?  Identification of all stakeholders and what are the constitutional right and legal requirements for all the institutions in this process?  What is the best way to resolve the impasse between Eskom and municipalities in the best interests of the industry, the economy and the country?  Who is benefiting most/least from the current situation? Is there a sincere desire to improve service delivery, business sustainability and risk mitigation by all stakeholders

6. 6 Strategic considerations Holistic approachCustomer service InfrastructureEmployees Capital investmentTechnology Asset valueFinancial Bulk supplyLegal Debtors bookStakeholders

7. Emotional Rational Political Win Challenges (examples) Potential financial losses Labour and staff resistance Potential customer and community resistance Absence of current business readiness Capital required for upgrading Lack of customer, community and stakeholder support Complexities and challenges to be managed by the project team 7

8. To consider and decide on the merits of following a different approach to resolving the Eskom/Municipality relationship issues. AMEU is proposing a two phased approach: 1. Get NERSA to include SDA with municipalities as prerequisite part of the Eskom tariff approval. 2. Start the process of consolidation of electricity service delivery within the area of jurisdiction of municipality (with a joint project team) in the best interests of the industry, the economy and the country

9. 20132014 February – Report on SALGA/Eskom engagements on draft EDI Framework Agreement where Eskom the service provider March – half day workshop re content and structure of AMEU position paper April – first draft Position Paper on Alternative Approach to Restructuring of EDI: Output Two May National Stakeholder Workshop re Alternative Approach to Restructuring of EDI SALGA draft SDA to munics for comment July CoJ/Eskom meeting Feasibility Consolidation of Service Delivery in CoJ SALGA Position Paper Proposed Approach to Restructuring of EDI July – SALGA/NERSA meeting Lobby support for SDA’s where Eskom service provider Reform of EDI September – Strategic Session to expedite roadmap approach to National Electricity Framework Agreement and MOU between SALGA and Eskom September – legal opinion received (MHA) November SALGA National member Assembly – scheduled sign of MOU does NOT take place SALGA/NERSA/DoE discussion of way forward and comments of Draft SALGA/Eskom Electricity Distribution Framework Agreement Local Government Position Paper presentation (AMEU Technical Committee) November – full presentation on SALGA/Eskom Position Paper (Technical Committee Meeting) Eskom and SALGA CEO’s agree in principal that SDA(s) need(s) to be put in place SALGA /Eskom legal teams to agree on content of MOU and Framework Agreement Legal teams to chart way forward and SALGA to engage relevant Ministers Eskom requests more legal consultation AMEU takes decision to adopt a two pronged approach – push for SDA whilst collaborating to achieve consolidation of areas of supply

10. To make concluding an SDA with a municipality a license condition for distributors (service providers) in line with existing legislation SALGA engages NERSA Regarding interpretation of the Constitution, existing legislation and regulations (particularly w.r.t. SDA regulation requirements) Legal Opinion sought Comprising SALGA, AMEU, Eskom, NERSA, DoE and DPE representatives To map the journey to culminate in consolidation of supply rights Working Group established ?

11. Legal opinion provided by Leslie Mkhabela and Jim Matemane of Mkhabela Huntley Adekeye Inc (MHA)

12.  In terms of the Systems Act, a municipality has executive authority over electricity reticulation services in its area of jurisdiction. This includes the power to provide or regulate how electricity reticulation services are provided within its area of jurisdiction.  If a municipality decides not to distribute electricity itself, it must conclude an SDA with the person who reticulates electricity in its area of jurisdiction.  An SDA is required even where an entity is an organ of state that is licensed in terms of another legislation to provide such particular service  The Electricity Regulation Act recognises that a municipality has executive authority over reticulation services as defined in the Act. Within this context, the Electricity Regulation Act further recognises that provision of reticulation services within a municipality’s area of jurisdiction will require a conclusion of an SDA and accordingly regulates how such SDA’s should be concluded.

13.  Eskom is required in terms of the law to conclude SDA’s with municipalities in whose areas it distributes electricity; and  The fact that Eskom holds a licence issued to it by NERSA to distribute electricity does not exempt it from complying with the provisions of the Systems Act. To the contrary, the Electricity Regulation Act recognised that entities licensed by NERSA to reticulate electricity within the area of jurisdiction of a municipality will be required to enter into an SDA with such municipality. MHA

14. Where to from here?

15. To make concluding an SDA with a municipality a license condition for distributors (service providers) in line with existing legislation SALGA engages NERSA Regarding interpretation of the Constitution, existing legislation and regulations (particularly w.r.t. SDA regulation requirements) Legal Opinion sought Comprising SALGA, AMEU, Eskom, NERSA, DoE and DPE representatives To map the journey to culminate in consolidation of supply rights Working Group established ?

16. WhatWhoBy When Provide SALGA with the Legal opinion for discussion and engagement with NERSA and other stakeholders Formulate a working group comprising SALGA, AMEU, Eskom, NERSA, DoE and DPE representatives to map the journey to culminate in consolidation of supply rights Stakeholder Engagement: