Port Elizabeth Metro reaches R100 million write-off deal with 13 high-energy users

Three foundries amongst group of 13.

In reports emanating from Port Elizabeth, nearly R100 million owed by some of Nelson Mandela Bay’s biggest employers for unpaid electricity bills and interest on the accounts will be written off by the Nelson Mandela Bay municipality.

Dubbed as “Danny Jordaan’s R100 million electricity ‘gift’ to business” the council has approved a deal involving 13 high-energy users that only R45.9 million be recovered from the businesses over a period of six months.

The agreement reached is part of a bid to save thousands of jobs, ensure the companies’ doors remain open and attract more investment. Council gave city manager Mpilo Mbambisa the go-ahead recently to sign an out-of-court settlement with the companies.

The negotiations with the high-energy users group were discussed behind closed doors at a council meeting.

Autocast SA executive Director David Merten, who is also the spokesperson for the high-energy users, said they were waiting for feedback from the municipality before they could comment.

The companies involved with the 13 high-energy users group are Autocast SA, Borbet, Shatterprufe, Gillet Exhaust Technologie, Visteon SA, Coca-Cola Fortune, Natstan Wire, Crown Chickens (Sovereign Foods), Weir Heavy Bay Foundry, S&N Rubber, Johnson Controls Automotive, CRH Africa and MW Wheels SA.

In its motivation to support the writing off of the debt, the metro maintains that it will recoup the money in the long run from the 3 800 people whose jobs were saved, as well as from the other ratepayers. This was in a bid to smooth relations with the business sector and save nearly 3 800 jobs that the companies said would be shed if they were forced to cough up.

The move comes after the 13 companies took the metro to court, seeking to have the 2011/12 budget declared unlawful after the municipality introduced electricity-tariff increases of 35% higher than if they received electricity directly from Eskom. The companies deemed that these increases were expensive and they could not afford them.

Following years of litigation and failed attempts to write off R149 million worth of debt by the companies – resulting in them withholding payment in protest at the tariff hikes imposed in the 2011/12 financial year – Jordaan managed to negotiate a settlement resulting in R100 million of that amount being written off.

In his speech to council, Jordaan acknowledged that the city had used electricity tariffs in the past to augment its budget. “Our city is run inefficiently. We have been charging consumers progressively higher service charges and rates without a concomitant improvement in service quality. We have been using income from electricity to cross-subsidise budget expenditure, and this can no longer continue,” Jordaan said then.

The Nelson Mandela Bay Business Chamber supported the 13 companies in their litigation against the metro.

Many of the companies are component suppliers to the automotive industry, the lifeblood of the city.

The deal further states that “the metro will recover millions in unquantifiable annual revenue from the directly affected 3 799 ratepayers whose jobs would be retained as a result of the settlement”.

Kobus Gerber, chairperson of the Nelson Mandela Bay Metro Ratepayers’ Association, said the metro had been forced to make concessions to business.

“The companies would have had to retrench more than 3 000 people. The metro had no choice but to settle the matter because they had created this mess in the first place by increasing tariffs illegally. We also understand that some of these companies were threatening to close shop and take their business to other provinces or countries such as Mozambique. You must remember these factories create lots of jobs. A conducive environment is needed to retain them and make sure more investors are attracted,” he said.