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In 2018, the Thaba Chweu council tried to wiggle its way out of a 25-year contract with China Sinogy Electric Engineering Company (CSEEC) but wimped out CSEEC threatened to sue.

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 Sizwe sama Yende

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Most municipalities are struggling to pay their Eskom bills and one in Mpumalanga faces a double problem for having tied itself to a 25-year contract with a Chinese company which cost it an extra R500 million.

The cash strapped Thaba Chweu local municipality in Mashishing (formerly Lydenburg) owes the power utility R1.6 billion.

This takes its electricity bill to just over R2 billion at present.

The municipality signed a contract with China Sinogy Electric Engineering Company (CSEEC) in 2014 to build a substation called Duma after its former mayor, Selina Mashego, led a delegation to China on an investment-seeking trip.

Initially, the public private partnership contract, meaning CSEEC would raise the money itself to build the 40 MV Duma substation and find ways to recoup it, cost R295 million. It has however increased to R410 million and now it is R500 million due to changes in scope and the dollar/rand exchange rate.

After Mashego’s departure, her successors tried to cancel the contract following concerns about the escalating cost and that the contract was approved without adhering to the Municipal Finance Management Act.

In 2018, the council wimped out of the decision after CSEEC threatened it with litigation. The contract will still haunt the municipality until 2039 when it is expected to expire.

Asked how much the municipality was spending towards CSEEC, the municipality responded: “There is a monthly contribution of R2.9 million (excluding VAT) (R34.8 million) towards preventative repairs and maintenance of the infrastructure, which the municipality began paying after the infrastructure was energised by Eskom.”

Furthermore, the municipality said that the council had approved a financial model, which ensured that the company recovered its investment from savings that will arise once all points of intake from Eskom were consolidated into the Duma Substation. 

“Currently, the municipality incurs high, fixed costs for multiple Eskom points of intake. Once these points are consolidated into one, a percentage of the savings will be paid to the company. Additionally, the company will assist Thaba Chweu with smart metering. Any revenue collected above our current baselines will result in a percentage being paid to the company.”

These models, the municipality said, did not financially expose it and were dependent on CSEEC’s performance.  “The monthly contribution is approved as part of the annual budget and the municipality manages within the limited cashflow to make monthly payments.”

DA councillor, Comfort Sibiya, has called on Ehlanzeni district mayor Terrence Shabangu, to step in and provide technical support and capacity building to the municipality following a qualified audit opinion for the 2024/2025 financial year. 

This situation, Sibiya said, was a concern as it put the municipality’s financial viability and ability to continue operating into question.

The municipality, according to the latest audit opinion, incurred irregular, fruitless and wasteful expenditure amounting to R147.4 million.

The municipality said that it failed to service the Eskom debt due to

high distribution losses resulting from resistance to pay for services and illegal tampering with municipal infrastructure.