South Africa’s energy regulator Nersa and the National Treasury are among several state institutions in the crosshairs of Afriforum that has just applied to the North Gauteng High Court to have the Distribution Agency Agreement (DAA) between Eskom and the Merafong municipality declared unlawful and set aside.
The litigation may have serious implications for Eskom’s plans to roll out such agreements in more municipalities in arrears with Eskom.
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Arrear municipal debt to Eskom has exceeded R110 billion and is considered an existential threat to the state-owned power company. It is pushing DAAs as a solution, which entails that the municipality appoints Eskom as an agent to manage its electricity distribution function, including metering, billing, collections, repairs and maintenance.
So far, Eskom has concluded three such agreements. The first two, with the Maluti-a-Phofung municipality, based in Harrismith, and Emfuleni, based in Vanderbijlpark, came about following a court order.
The DAA with Merafong, which was concluded in December 2025 is the first where a municipality concluded it out of its own. Eskom has however announced that a further nine municipalities have adopted council resolutions that point in that direction and indications are that at least four more municipalities have been identified by the Mpumalanga Provincial Government for the implementation of DAAs.
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In Afriforum’s founding affidavit, deposed by its local government advisor Deidrè Steffens, the organisation says that several attempts to get more information about the Merafong DAA were unsuccessful as state institutions refused or failed to respond to its requests.
It therefore reserves its rights to supplement its filings once the relevant information is shared during the litigation process.
Currently it asks the court to declare unlawful, invalid and set aside:
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- Nersa’s failure to enforce the regulatory framework on Eskom and Merafong and compelling it to exercise its legal powers against the two parties.
- Eskom and Merafong’s conclusion of the DAA and prohibiting them to further implement the DAA.
- The support or failure to take appropriate measures against Eskom and Merafong in concluding the DAA by National Treasury and the ministers of energy and electricity, finance, and cooperative governance and traditional affairs.
They also ask that Eskom and Merafong be ordered to pay Afriforum’s legal cost.
The organisation points out that Nersa has oversight over its licensees, including Merafong, that holds a license to distribute electricity and Eskom that holds several different licenses. If need be, Nersa can revoke the license of a non-compliant licensee.
In terms of the Electricity Regulation Act (ERA), no licensee “may cede, transfer or assign any such power or duty to any other person without the prior consent of Nersa.”
The ERA further requires municipalities to comply with the Local Government: Systems Act when it appoints an external service provider (like Eskom) to deliver its licensed service.
In terms of that Act, a municipality must follow several processes before it can decide to outsource a municipal service. This includes consultation with the public and organised labour, conducting a feasibility study which must assess among others the value for money for the municipality, the duration of the contract, and the impact on the municipality’s integrated development plan and budget.
According to Afriforum, the municipality has not followed any of these processes and Nersa has done nothing about it.
It points out that Merafong, like many other municipalities, have for years failed to pay their Eskom bills regularly in full, which is also a breach of their licensing conditions.
Municipal debt relief program
Afriforum refers to National Treasury’s debt relief program for municipalities that would enable a municipality that complies with the conditions of the program to have its arrear debt to Eskom written off over three years. Merafong participated in this program, but failed to comply, which could have activated the following condition.
Instead of enforcing this, National Treasury however followed the lead of the Minister of Energy and Electricity, Dr Kgosientsho Ramokgopa and Eskom in pushing errant municipalities towards concluding DAAs with Eskom, according to Afriforum.
The South African Local Government Association (Salga) objected publicly to the DAAs and pointed out significant risks to municipalities, “effectively calling for what Nersa should have called for and insisted on,” says Afriforum.
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It refers to a letter sent by National Treasury to the Dr Beyers Naudè municipality based in Graaf-Reinet on 22 February. The municipality failed to comply with Treasury’s debt relief program and it is given a choice between being kicked out of the program – which would give Eskom the green light for credit control measures like attaching the municipality’s bank account – and entering a DAA with Eskom.
Days later on 3 March Eskom issued a public notice that it may interrupt en reduce electricity supply to Beyers Naudè, giving it the option of entering a DAA to avoid it.
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Afriforum refers to Eskom’s modus operandi and describes how the utility is rolling it out to expand its net of DAAs with the support of National Treasury and excluding Nersa.
The organisation says National Treasury and Eskom try to “leverage the threat of bulk electricity supply interruption in order to compel municipalities to conclude DAAs” and adds that National Treasury “does not have the authority to compel or require a municipality to conclude a DAA with Eskom.”
It concludes that National Treasury “walked back” on the envisaged revocation of the distribution licenses of municipalities that didn’t comply with the conditions of its debt relief program.
Afriforum refers to reports on Moneyweb about National Treasury’s position that the current DAA, implemented in Merafong, is skewed in favour of Eskom and that Eskom is kicking in its heals.
It says this shows the problems with the DAA and that National Treasury does not have the regulatory powers to rectify it. Nersa, that does, is however absent.
It is not yet clear which of the respondents will oppose the application.
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