New deal for Bay high-energy users

But residents face higher electricity tariff increase

The Nelson Mandela Bay Municipality has finally clinched a deal with some of the metro’s biggest employers on electricity prices the high-energy users deemed too expensive and unaffordable. But in doing so, it has raised the tariff domestic users will pay from July 1 from the 1.8% it initially proposed to 3.8% – more than double the expected increase.

The rate for all business and commercial users will only go up 1.8%.

According to the city’s political head of budget and treasury, Retief Odendaal, while the impasse over the nearly R200-million in unpaid electricity bills owed by some of the companies has not been resolved, they have agreed on a cost- effective tariff from July 1 that will not only keep the businesses’ doors open, but will also make the Bay more attractive to investors.

Odendaal, together with some of the municipality’s senior managers and ANC councillor Rory Riordan, have been locked in months of intense negotiations with the high-energy users and Nelson Mandela Bay Business Chamber.

The deal, signed on Friday, ends what Odendaal described as a painful, drawn-out process which required a careful balancing act that not only benefited big business, but also the municipality and the residents of the city, with ratepayers to now pay a reduced rates hike of 4.8% instead of the proposed 9.5% from July 1.

Odendaal said to balance the books and ensure that service delivery projects did not suffer from the incentives offered to business, the municipality had significantly reduced the budget for telephones and contract security for the 2017-18 financial year, which starts on July 1.

Some of the contract security would be absorbed by the municipality and hired as permanent employees, which would save the metro a lot of money.

“We have been sitting with the highenergy users and business chamber for months – and the reality is that we have some of the highest costs of electricity [in the country],” Odendaal said.

“It makes it difficult to appeal to investors. Previously, it was a thumb-sucking exercise.

“The municipality would see that Eskom [rates were] going up by 6% and would say ‘I think Nersa [National Energy Regulator of SA] could allow us another 3%’, and that’s the way it was decided.

“No one ever looked at it properly to see exactly what it cost everybody concerned and what it was subsidising.”

Odendaal said that since they started the discussions with the groups, they had looked at the nitty-gritty details of the costs and discovered that industry was being charged too much and that Time-of-Use tariff users were ultimately subsidising businesses that were using the normal meters.

“We had to decide how to make it beneficial to the city and make it more attractive to more investors,” he said.

“We promised change and to cut out the waste. We believe we have done so without burdening the average ratepayer and resident too much. “We are proud of this process.” Odendaal said the business chamber and high-energy users had signed an agreement to keep their accounts up to date and paid in full from July 1. The agreement and new tariff structures will have to be approved by the council when it passes the 2017-18 budget before the end of next month.

High Energy User Group spokesman David Mertens said the move to align the tariffs was beneficial to all as it was more cost-reflective.

“This means that the tariffs the municipality will charge will more closely reflect what it costs for the municipality to serve its consumers,” he said.

“The cost-reflective tariff structuring is in line with the legal framework for electricity tariffs and is a major step towards fully compliant electricity tariffs.”

Mertens said the move would ultimately reduce the municipality’s costs so they could offer better tariffs to all.

“We looked at various aspects, specifically the Time-of-Use tariff, to ensure that industrial and also commercial businesses realign with the current tariff structures which are inherent in how the municipality pays its bill to Eskom.

“Users who are on tariff structures which are less cost-reflective might have to pay more if they do not realign their usage to the times when electricity is cheaper for the municipality.

“Businesses, if they have not already done so, might have to change their production times to make it more cost-effective for them.”

Asked how the new tariff might affect potential investment, Mertens said it would certainly be a drawcard.

“[It] will potentially encourage investors to stay and invest in this metro.

“The NMBM will offer one of the most attractive industrial municipal tariffs and, given the current [economic] situation, more can be achieved in the following years,” he said.

“This will bring a host of spin-offs, the most important being much-needed job creation.”

However, the ANC’s Riordan said that while he had heard an agreement was reached between the municipality and high-energy users, he had yet to see it.

“During this entire process, the municipality stumbled around to a large degree and this has now led to the high-energy users having a field day and getting their way,” he said.

Riordan said he believed the municipality could have reached a better deal.

“The municipality has lost on this deal and the high-energy users have scored.”

Some of the high-energy users – about 15 firms – have been locked in a dispute with the municipality for a number of years over the way the tariffs were structured.

As a result, some of them have only paid 79.23% of their electricity bills, pushing their arrears accounts to about R180-million.

Odendaal said while the companies wanted their debt written off, the municipality had refused and would wait for the outcome of the court case between the high-energy users and Nersa before making any decision.

“We made it clear from the beginning that we are not writing off a cent,” he said.

“The agreement we have reached is that they accept the tariffs for the next financial year, that it was a credible process, and that they will keep their future accounts up to date.

“The money owed will remain owed until the Nersa case is resolved, and then we will act based on the court order.”

Mertens said the agreement was a major step in terms of the litigation which would be beneficial to all.

In the metro’s deal with the high-energy users in 2015, it wrote off about R245-million.

However, the agreement between the city and the companies, which was approved by the council, was so poorly constructed that it failed to ensure that the businesses paid their future bills in full.

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