Municipalities oppose regulator’s approval of electricity trading licences

THE South African Local Government Association (Salga) says it is deeply concerned about the decision by the National Energy Regulator of South Africa (Nersa) to grant electricity trading licences to private entities before finalising the necessary trading rules.

Salga, which is constitutionally mandated to represent South Africa’s municipalities, says it shares Eskom’s apprehension that this move, taken without a comprehensive regulatory framework and adequate public consultation, poses a serious threat to the financial sustainability, constitutional mandate, and operational integrity of municipal electricity distribution systems.

Undermining local governance

According to Salga, finalised trading rules are essential to ensure:

• Clear definitions of customer eligibility and trader rights;
• Protection of redistributive and cross-subsidisation obligations embedded in municipal tariffs;
• Safeguards against predatory competition in licensed municipal areas of supply.

It says granting licences on an ad hoc basis without finalised rules or a defined trading market undermines regulatory certainty, erodes municipal powers under the Electricity Regulation Act, and risks destabilising the sector.

The organisation representing municipalities has identified the following risks to its members:

1. Erosion of revenue and service delivery capacity. Electricity revenue is a critical income stream for municipalities, funding both energy services and other essential infrastructure such as roads, waste management and water supply. Allowing traders to target only high-value, reliable customers will reduce cross-subsidisation and leave municipalities with a disproportionate share of defaulting customers.

2. Infringement of constitutional mandates. Municipalities are constitutionally empowered to reticulate electricity in their areas of jurisdiction. Allowing traders to operate in these same areas without coordination is a direct infringement of this right.

3. Unfair market imbalance. Traders will be able to offer competitive tariffs to premium customers without the same universal service obligations that municipalities must uphold, creating an uneven playing field and distorting competition.

4. Exacerbating the municipal debt crisis. Municipal debt to Eskom now exceeds R100 billion. Salga supports the call for trading rules that include debt-recovery mechanisms, such as clearing houses, restrictions in defaulting municipalities and trader contributions to subsidy pools. Without these measures, the debt crisis will worsen, undermining Eskom and the national fiscus.

The local government association is appealing to Nersa to take the following actions:

• Suspend the approval of further trading licences until a transparent and balanced regulatory framework is finalised and consulted upon;
• Engage municipalities as equal partners in developing rules that uphold the developmental mandate of local government while ensuring market fairness.