NCP Chlorchem (Pty) Ltd v National Energy Regulator and Others (49608/2012) [2016] ZAGPJHC 300; [2017] 1 All SA 950 (GJ); 2017 (6) SA 158 (GJ) (17 October 2016)

REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: 49608/2012

17 October 2016

Reportable: Yes

Of interest to other judges: YesRevised.

In the matter between:

NCP CHLORCHEM (PTY) LTD Applicant

and

NATIONAL ENERGY REGULATOR First Respondent

EKURHULENI METROPOLITAN MUNICIPALITY Second Respondent

ESKOM HOLDINGS SOC LIMITED Third Respondent

MINISTER OF ENERGY Fourth Respondent

JUDGMENT

KATHREE-SETILOANE

[1] This review application concerns the supply and pricing of electricity to the applicant. The applicant, NCP Chlorchem (Pty) Ltd (NCP) supplies more than 90% of the liquefied packed chlorine that is necessary for water purification in South Africa. It makes liquefied chlorine through a process of electrolysis in which electricity is used as a raw material. The central issue in this application concerns the question of whether NCP is supplied by the second respondent, the Ekurhuleni Metropolitan Municipality (EMM) or the third respondent, Eskom Holdings Soc Limited (Eskom). After a protracted series of interactions between NCP and EMM and in an attempt to resolve NCP’s concerns about the cost of electricity where EMM was purportedly not supplying it with electricity, it approached the first respondent, the National Energy Regulator of South Africa (NERSA) to mediate the dispute in terms of section 30 of the National Energy Regulator Act 40 of 2004 (the National Energy Regulator Act). On 2 October 2008 NCP filed a complaint with NERSA in which it sought the following relief:

(a) A declaration that NCP is entitled to procure its electricity supply directly from Eskom at the applicable Eskom rate;

(b) Alternatively, that the EMM must invoice NCP at a rate commensurate with the rate it would be charged if it procured its electricity supply directly from Eskom.

[2] On 29 February 2012 NERSA made the following ruling:

(i) NCP is to be charged a tariff equivalent to the Eskom Megaflex tariff plus a mark-up of 24% effective from 1 July 2012.

(ii) NCP and EMM are required to negotiate a settlement of arrears based on a previous offer made by the EMM to NCP whereby EMM shall provide a rebate to NCP for the period of three years prior to 1 July 2012, which will be calculated to take into account the waiver of the Network Access Charge and a 1% discount on the total NCP account. This discount is intended to compensate NCP for the cost and operation of the NCP Substation;

In analysing the dispute, NERSA made the following findings:

(a) The NCP Substation, which was built by NCP at its own cost and which is operated and maintained by NCP, receives its supply directly from the Eskom distribution network.

(b) NCP is invoiced by EMM for its electricity usage at a tariff which provides for electricity purchases from Eskom, network charges and customer service charges by EMM. The average annual mark-up on the Eskom purchase price is 50.3%.

(c) This is a unique case because the only involvement of EMM in the supply of electricity to NCP is in metering and billing.

NCP challenges this decision on review. In doing so, it seeks the following relief:

1. an order reviewing and setting aside the NERSA decision;

2. an order declaring that Eskom is not entitled to refuse to enter into an electricity supply agreement with NCP; alternatively

3. an order substituting the NERSA decision with a decision directing EMM to contract with NCP for the provision of electricity:

(a) at a rate of Eskom Megaflex for the electricity consumed as a raw material in the NCP electrolysis process; and

(b) at the EMM tariff for all remaining electricity consumed by NCP, separately metered;

4. to the extent necessary, an order declaring that section 30(4) of the National Energy Regulation Act is inconsistent with the Constitution and invalid.

[3] EMM brought a counter-application based in large part on allegations of fraud against certain directors of NCP in which it, inter alia, sought the review and setting aside with retrospective effect of each of the decisions taken by NERSA to approve special tariffs applicable to NCP since June 2012. It also sought a declaratory order that NCP is bound by NERSA’s Tariff D with retrospective effect to 1 July 2012. During argument, EMM abandoned its counter-application for review relief and declaratory relief in the terms referred to above and, instead, sought a declaratory order that NCP is bound by the decisions taken by NERSA to approve the special tariffs applicable to NCP (subsequently promulgated by EMM) with full retrospective effect to 1 July 2012.

[4] NERSA has conceded that NCP is entitled to the review relief that it seeks as the NERSA decision was taken by a procedure that failed to meet the standards of fairness required of an arbitration. EMM originally contended that the review relief was moot and was precluded by section 30(4) of the National Energy Regulation Act. It, however, changed tact at the hearing by conceding that NERSA’s decision was invalid and should be set aside, but was only prepared to agree to a remittal of the disputes arising from 2015 to NERSA for determination. NCP persisted in seeking the declaratory relief in prayer 2 of the notice of motion in the first instance as substitutionary relief pursuant to the review relief in prayer 1, alternatively as independent relief. However, in the event that the Court is not amenable to granting it the declaratory relief in prayer 2 of the notice of motion then, subject to agreement by EMM, it consents to the remittal of all the disputes from 2012 onwards to NERSA for reconsideration. However, in the event of EMM refusing to agree, then it seeks the relief in its alternative prayer of substitution in prayer 3 of the notice of motion. Both NERSA and EMM oppose NCP’s claims for declaratory relief and for substitutionary relief.

The Business of NCP

[5] NCP is the country’s largest producer and leading supplier of liquefied packed chlorine. It is considered to be of strategic national importance and has been declared a National Key Point. NCP is also registered as a Major Hazardous Installation due to the toxicity of the chlorine produced at the NCP plant. Although, historically, NCP had an effective monopoly over the South African market in liquefied packed chlorine, it is now faced with competition from Protea Chemicals, who is wholly independent of municipal charges.

[6] The properties of chlorine make it unsafe to be stored in large quantities. The practice at NCP is to limit its inventory of bulk chlorine to one day’s production. In order to maintain a continuous supply of chlorine for its customers, it is critical that NCP produce chlorine on a continuous, 24-hour-per-day, 365-days-per-year basis. The chlorine is produced by an electrolytic process using highly sophisticated and sensitive equipment. Electricity consumed by the electrolytic process constitutes more than 50% of the total variable cost of production, which comprises the raw materials, process materials and utilities. Approximately 90% of the electricity consumed by NCP is used, not as a utility for lighting to drive machinery or to generate heat, but rather as a raw material in the process of electrolysis to produce chlorine, caustic soda and hydrogen. NCP points out that the supply of electricity (at a sustainable cost) is, therefore, crucial to the business of NCP.

The physical supply of electricity

[7] NCP is physically connected to the Eskom 132kV Esselen Park-Midrand distribution line. Three Eskom transformers are currently dedicated to supplying electricity to the NCP Substation: T2 and T3 which are each 20MVA transformers and T4 which is a 40MVA transformer. It is common cause that the T4 transformer was installed by NCP at its own cost in 2006 when the NCP Substation was constructed. No part of the EMM’s distribution system or any of its equipment is actually used in the supply of electricity to NCP’s plant.[1]

[8] There are only two other manufacturing installations comparable to the NCP plant in South Africa. These are the Sasol chlorine plant Sasol Polymers in Sasolburg and the Mondi chlorine plant in Richards Bay. Both of these plants consume electricity that is purchased directly from Eskom. Sasol and Mondi are accordingly able to procure their electricity at “wholesale” prices from Eskom whereas, as contended by NCP, the effect of the NERSA arbitration ruling would be to compel NCP to procure its electricity at “retail” prices from EMM, although it adds no value whatsoever in the process by which NCP obtains its electricity from Eskom.

The NCP Substation

[9] NCP claims that prior to obtaining its electricity from Eskom, it obtained it from the predecessor municipalities of EMM. In November 1996, NCP entered into an electricity supply agreement with two predecessor municipalities, the Edenvale/Modderfontein Metropolitan Substructure and the Kempton Park/Tembisa Metropolitan Substructure (1996 Supply Agreement). That agreement lasted for 10 years and expired in November 2006. NCP contends that since that date there has been no agreement in existence to regulate its electricity supply, despite its attempts to conclude a tripartite agreement with EMM and Eskom, as part of the Mayoral Committee Resolution of 10 March 2005, which is discussed in more detail below.

[10] The predecessor municipalities provided NCP with a favourable electricity pricing arrangement. However, from 2003 to 2005, while the 1996 Supply Agreement was still valid, EMM unilaterally phased out the 20% rebate that NCP enjoyed in terms of the agreement. This resulted in the tariff which EMM charged NCP increasing by 25% over and above the normal annual tariff increases for the 2003 to 2005 period. After the expiry of the 1996 Supply Agreement, EMM purported to charge NCP at EMM’s ordinary tariff D for the electricity consumed by NCP, although there was no remaining agreement between the parties. From March 2003, NCP experienced extensive interruptions to its electricity supply due to poor maintenance by EMM of its reticulation equipment. These interruptions resulted in a major loss of production for NCP, as well as consequential maintenance costs and unplanned capital expenditure to replace damaged equipment. Over the next two years, problems of this sort persisted as EMM purportedly failed to perform the necessary maintenance of the Chloorkop Substation. EMM also made clear that in the short term it was not in a position to increase the capacity of the substation to meet the increased demand that was being placed on it. NCP was, consequently, forced to construct the NCP Substation at its own cost in order to secure its supply of electricity. The construction of the NCP Substation included the installation of a new 40MVA transformer, namely the T4 transformer.

[11] The construction of the NCP Substation was approved by resolution of the Mayoral Committee of EMM on 10 March 2005 (EMM Mayoral Committee Resolution). The EMM Mayoral Committee Resolution further recorded that NCP would assume full responsibility for the maintenance and operation of the NCP Substation, while EMM would assume responsibility for the maintenance and operation of the existing Chloorkop Substation.

Description of the NCP Substation

[12] The transformers dedicated to feeding the NCP Substation with a supply of electricity are: T4 (40MVA transformer), T3 (20MVA transformer) and T2 (20MVA transformer. In addition, there is a separate 20 MVA T1 transformer which is connected to, and dedicated to feeding the EMM operated Chloorkop Substation with a supply of electricity. Although provision is made in relation to the T2, T3 and T4 transformers for Eskom to take meter readings to be furnished to EMM, and for EMM to take meter readings to be furnished to NCP, the T2, T3 and T4 transformers are supplied by the Eskom distribution line and not through the EMM reticulation system. There is an interconnection between the NCP Substation and the Chloorkop Substation through which the NCP Substation can act as a backup for the Chloorkop Substation, should the Chloorkop Substation be unavailable to supply the EMM load due to maintenance or a trip.

[13] The interconnection between the NCP Substation and the Chloorkop Substation is provided by a breaker and cables that were installed as part of the construction of the NCP Substation and funded by NCP. This NCP metered connection acts as a backup supply for EMM’s dedicated transformer for the Chloorkop Substation, in the event of failure or maintenance of the EMM transformer or substation. The interconnection has been used to sustain electricity supply to EMM on several occasions since the upgrade.

In addition to the NCP Substation and the Chloorkop Substation, there is an Eskom control room (dealing with Eskom supply to the entire substation, including T1, T2, T3 and T4). Importantly, there is no service relationship between NCP and EMM with respect to maintenance work and supply problems involving the supply from transformers T2, T3 and T4 to the NCP Substation, or the NCP metered interconnection to the Chloorkop Substation, because these issues are dealt with between NCP and Eskom directly. EMM has appointed a third party contractor to take meter readings across the distribution system, including the meters installed at the NCP Substation. The advanced technology of these meters makes it possible for the readings to be done remotely via the Internet. EMM, therefore, does not require, and has no, access to the NCP Substation. This means that EMM is practically unable to disconnect NCP from its supply of electricity or to interrupt its electricity supply.

[14] Issues of load management relating to the NCP Substation are also handled directly between Eskom and NCP without any involvement of EMM. NCP has the ability to rapidly reduce the load by up to 20 megawatts, in order to assist Eskom with load management during periods of peak consumption, and has done so at Eskom’s request on many occasions over the last few years. After a protracted series of interactions between NCP and EMM in an attempt to resolve NCP’s concerns about the cost of electricity in circumstances where, according to NCP, the EMM was not in fact providing it with electricity, NCP took the view that its only recourse was to approach NERSA to mediate the dispute.

The Nature of NERSA’s Dispute-Resolution Power

[15] NERSA is an organ of state established by the National Energy Regulator Act. In terms of section 4(c) of this Act, NERSA must undertake the functions set out in section 4 of the Electricity Regulation Act 4 of 2006 (the Electricity Regulation Act). Those functions include:

(a) Considering applications for and issuing licences for, inter alia, electricity generation, transmission or distribution facilities.[2]

(b) Regulating prices and tariffs.[3]

(c) Mediating disputes between generators, transmitters, distributors, customers or end users.[4]

NERSA’s mediation power is further regulated by section 30 of the National Energy Regulator Act which permits NERSA to settle disputes between licensees and end-users or customers “by such means and on such terms as the Regulator sees fit”. Subsection 30(4) provides:

‘The mediation or arbitration in terms of this section is done at the request of the parties to the dispute and no decision of the Regulator or the person contemplated in subsection (2), taken in the course of the mediation process, must be regarded as a decision contemplated in section 10 (3) or (4) of the National Energy Regulator Act.’

‘ (3) Any person may institute proceedings in the High Court for the judicial review of an administrative action by the Energy Regulator in accordance with the Promotion of Administrative Justice Act, 2000 (Act 3 of 2000).

(4) (a) Any person affected by a decision of the Energy Regulator sitting as a tribunal may appeal to the High Court against such decision.

(b) The procedure applicable to an appeal from a decision of a magistrate's court in a civil matter applies, with the changes required by the context, to an appeal contemplated in paragraph (a).’

Sections 10(3) and (4) of the National Energy Regulator Act provide respectively, for the judicial review of administrative action performed by NERSA in terms of the Promotion of Administrative Justice Act 3 of 2000 (PAJA) and for an appeal against a decision of NERSA sitting as a tribunal.

[16] On 2 October 2008, NCP filed its complaint with NERSA. It is common cause that at the first meeting between the parties and NERSA on 30 October 2008, it was agreed that NERSA would investigate the matter in order to facilitate a solution failing which, arbitration would take place. Thus, in arriving at the arbitration ruling that is the subject of this application, NERSA was resolving a dispute submitted to it by the parties under section 30 of the National Energy Regulator Act.

[18] That said, the decision by NERSA to exercise the dispute-resolution power by way of arbitration (as opposed to mediation), deriving from the authority granted by section 30 of the National Energy Regulator Act to resolve a dispute referred to it “by such means and on such terms as the Regulator sees fit” is an exercise of public power. Even if it is not administrative action, such a decision is subject to the requirement, stemming from the principle of legality, that it must be lawful and rational. The latter concept includes a duty to act fairly - a duty that can arise independently of any statutory obligation imposing the duty.[6] It follows that the decision of NERSA is reviewable. In view of this finding and EMM’s concession that the NERSA decision is, indeed, reviewable, there is no need to consider the question of the constitutionality of section 30(4) of the Electricity Regulation Act as foreshadowed in prayer 4 of the notice of motion.

Procedural Unfairness

[19] NERSA is an organ of state. In the carrying out of its statutory mandate it exercises public power. It is consequently required by the Constitution to conduct itself in a fair, transparent and accountable manner. This means that when litigation is brought by or against an organ of state it should be an exemplary litigant. It is for this reason that NERSA conceded the case of NCP that there were flaws in the procedure followed in the dispute-resolution process that resulted in unfairness to the parties. As correctly submitted by NERSA, those flaws vitiate the outcome of the arbitration and have the result that it falls to be reviewed and set aside.

[20] In particular, at the fourth meeting between NERSA and the parties on 26 August 2011, the chair of the meeting declared that NERSA would settle the dispute in a manner that NERSA saw fit in terms of section 30(1)(b) of the National Energy Regulator Act>. NERSA then called for all relevant documentation to be sent to it. It said that it would call or arrange a meeting should further clarification be required. On 7 November 2011, NERSA wrote to the parties saying that it intended to conduct an investigation meeting for which submissions would be required. The submissions would take the form of presentations to an arbitration panel. NERSA would determine the constitution of the panel and communicate the date of the meeting to parties.

[21] According to NERSA, this letter indicated to the parties that an arbitration was contemplated. However, subsequent events created the impression in the minds of the parties that the mediation process was continuing. The meeting held on 23 November 2011, which was the only meeting with the parties held prior to the ruling, was described by NERSA as a “mediation meeting”. The arbitration panel was appointed only subsequent to this meeting on 24 November 2011.The panel thus deliberated on the basis of submissions elicited by NERSA from parties who were unaware that the purpose of those submissions was that they would be placed before the arbitration panel for purposes of making a decision. The terms of reference of the panel were, moreover, provided to it by NERSA without input from the parties. Ultimately, NERSA’s decision to resolve the dispute by referring it to an arbitration panel was made without adequate notice to the parties, thereby fundamentally tainting both the proceedings and any decision arising from them.[7] Though EMM has not complained of any prejudice arising from this, NCP has and this, in NERSA’s submission, was sufficient to require it to accede that the decision must be declared invalid and set aside.

[22] In the ordinary course, a procedural unfairness complaint would dispose of the review relief sought in an application, thus obviating the need to consider any other grounds of review raised. NCP, however, urged the Court to consider its other grounds of review as they relate to certain errors of law and fact in the NERSA decision that are relevant to the question of remedy. The primary error of law ground raised by NCP is EMM’s mistaken constitutional law premise that electricity supply is the exclusive preserve of municipalities, and the error of fact grounds raised are predominantly these:

(a) The panel erroneously assumed that that 80% of NCP’s electricity purchases is for raw material (which is the actual assumption made at paragraph 51c of the reasons of the panel) as the proportion of the NCP electricity purchase that goes to raw material is 90% and not 80%. The panel failed to appreciate that the figure in paragraph 51c of the reasons for the decision priced the 80% component not at Megaflex but rather at Megaflex plus 15%.

(b) The additional 2% premium added for the benefit of EMM is the product of NERSA’s mistaken legal view that the EMM has the exclusive executive competence to supply electricity within its area of territorial jurisdiction.

NCP contends, on this score, that if the arbitration panel had appreciated its legal error and given effect to its actual reasoning stripped of its arithmetical errors, the resultant ruling would have given effect to the order that it now seeks in prayer 3 of the notice of motion as its alternative order of substitution, namely an order that it be charged at Eskom Megaflex for the electricity it consumes as a raw material, and at the EMM “retail” tariff for all other electricity it consumes as a utility, separately metered.

Remittal to NERSA

[23] Where a decision is set aside on review, the ordinary consequence is that that decision is remitted to the administrator for reconsideration. The Court may give specific directions concerning the reconsideration of the decision. Only in exceptional circumstances will a Court substitute its decision for that of an administrator. NERSA argued that absent exceptional circumstances, the dispute that occasioned the setting aside of the NERSA decision should be remitted to NERSA for reconsideration. As was made clear in argument, NCP is not opposed to a remittal to NERSA. It has tendered to conclude an arbitration agreement with EMM that provides for all of the disputes between the parties going forward from July 2012: (a) to be determined within 90 days by a 3 person arbitration panel convened by NERSA; (b) with the panel to be chaired by a retired judge or senior counsel, and to comprise additionally a tariff expert and an electricity expert, with the individual members of the panel to be appointed jointly by the parties or to be appointed by NERSA in the absence of agreement by the parties; and (c) with questions of law to be determined solely by the chair of the panel. NCP stood by that tender during the hearing, but it was rejected by the EMM.

[24] NERSA contends that the Court can, nevertheless, in the face of opposition from EMM, remit the matter to an arbitration convened by an independent panel (appointed by NERSA) for redetermination within 90 days. NCP contends, to the contrary, that it would not be appropriate for the Court to remit the matter to NERSA because the question as to whether it has the power to do so, in the face of opposition from the EMM, is not clear. This, it contends, creates the possibility for any finalization of the dispute, by such an arbitration panel, to be delayed by an EMM appeal against such an order of remittal by the Court, or a challenge to the jurisdiction of the arbitration panel when it convenes. NCP argues, in this regard, that there is scope for EMM reasonably to litigate against a remittal to NERSA on at least two grounds: the first is that it is not clear that NERSA may delegate its arbitral power to independent third parties, and the second is that it is arguable that the parties’ initial submission to NERSA’s jurisdiction has been novated by their joint conduct in taking the disputes for the pre-2012 period to trial before this Court under case number 35456/2013.

[25] To my mind, the only provision that might give NERSA authority to delegate its arbitral function to third parties is section 30(2) of the Electricity Regulation Act which provides:

‘The Regulator may appoint a suitable person to act as mediator on its behalf and any action or decision of a person so appointed is deemed to be an action by or decision of the Regulator.’

On its own terms section 30(2) does not refer to a power to delegate an arbitral function, only the power to delegate a mediation function. While, in context, section 30(2) may be interpreted to allow the delegation of an arbitral function, there is certainly scope for EMM to argue that this is not the case. Such an argument, whether or not it was successful, would serve to frustrate a speedy finalization of the proposed arbitration because it would prevent it from commencing before finalization of an appeal against any order of remittal that specified that the arbitration had to be conducted by independent parties. And if the order of remittal did not specify a requirement of independent arbitrators, the appointment or jurisdiction of such arbitrators may be challenged by EMM when the arbitration panel was convened by NERSA.

[26] Similarly, if the jurisdiction of NERSA to determine the dispute is conferred only by the consent of the parties under section 30(4), there is at least a plausible argument that such jurisdiction can equally be removed by consent of the parties, and that by litigating related disputes concerning the pre-July 2012 period without regard to the NERSA process, the parties have tacitly consented to their disputes being withdrawn from the jurisdiction of NERSA. Although these arguments may not necessarily succeed, the mere fact of their potential plausibility is sufficient to suggest that a remittal to NERSA in the face of opposition from the EMM will not lead to an expeditious finalization of the dispute. Bearing this in mind, I consider the lack of consensus between NCP and EMM on the question of remittal of the dispute to NERSA for reconsideration to constitute an exceptional circumstance which would justify the Court substituting its decision for that of NERSA.

The Application for Condonation

[27] Before considering NCP’s grounds of review, I must consider EMM’s application for condonation for the late filing of its answering affidavit in this application. This application was launched by NCP in August 2012. EMM only filed its answering affidavit two and a half years later on 2 February 2015. In its notice of motion, NCP sought review relief as well as declaratory relief that Eskom is not entitled to refuse to enter into an electricity supply contract with NCP. As is apparent from its answering affidavit, prior to June 2014 EMM was happy to abide the decision of the Court in relation to the review relief, but had always intended to oppose the declaratory relief sought by NCP in relation to Eskom. Consequently, on EMM’s own version, there was no need for it to await the filing of the Rule 53 record of the NERSA decision before it could file its answering affidavit in opposition to the declaratory relief. Yet it only filed its answering affidavit in February 2015, some two and a half years after it received the founding papers in August 2012.

[28] NCP implores the Court not to condone EMM’s egregious delay on two bases, firstly because it has failed to provide any explanation for it, and secondly, because the delay has been manifestly prejudicial to it. The explanation that EMM provides for its two and a half year delay in filing its answering affidavit is, for the most part, irrelevant to its answering affidavit as it relates to EMM’s alleged ignorance of the grounds of its counter-application until after June 2014. However, the explanation for the delay in filing the counter-application is irrelevant to the delay in filing the answering affidavit. To my mind, the only aspect of EMM’s explanation which is of any relevance to its answering affidavit is a single paragraph in which it complains about its administrative difficulties in sourcing some of the information which it required to compile the affidavit. This explanation, however, lacks particularity as Dr Fryer, the deponent to the affidavit, fails to explain when he started to look for the required information, what steps were taken, what difficulties were experienced and why the process took two and a half years. Moreover, Dr Fryer’s explanation ignores the fact that all of the issues relating to the declaratory relief sought by NCP were raised, in NCP’s founding complaint, in the NERSA proceedings in October 2008. So, by the time the founding affidavit was served in the review application, EMM had already had four years to prepare its case in relation to these issues.

[29] In attempting to avoid responsibility for its delay, EMM opportunistically blamed NCP for delays in: (a) launching the review application in August 2012, when it had been furnished with NERSA’s reasons in March 2012; (b) supplementing its founding affidavit outside the time periods allowed by rule 53 of the Uniform Rules; (c) failing to set down the application for hearing when EMM and NERSA had failed to file their answering affidavit timeously; and (d) replying to the EMM answering affidavit and counter-application only after NERSA had filed its answering affidavit. Since these complaints were never raised by EMM on the papers, but were raised during argument only, it would be prejudicial to NCP to blame it for delays which it had never been called upon to respond to in the first place.

[30] EMM conceded that at no stage in the NERSA proceedings did it ever take issue with NCP’s repeated claim that it is directly connected to the Eskom grid and does not draw its electricity supply from the EMM electrical distribution system. This is common cause on the papers. However, EMM maintained that it did not raise these disputes before NERSA because they were not relevant, as the primary dispute before NERSA concerned the question of whether NCP was EMM’s customer. There is no merit in that contention because it is evident from the NCP complaint that the dispute before NERSA concerned the question of whether NCP would be allowed to become a customer of Eskom. NCP’s central complaint was premised on the allegation that, NCP is directly connected to the Eskom grid and does not draw its electricity supply from the EMM electrical distribution system. The Rule 53 record reveals that this allegation was pertinently raised by NCP, on at least eight occasions in the NERSA process, in order to justify its claim to contract with Eskom.[8] It is simply inconceivable that EMM might have believed that these allegations were not central to its case in the NERSA proceedings, and might have unwittingly omitted to dispute them if, as it now contends, it had a bona fide answer to.

[31] The disputes of fact raised by EMM, in its answering affidavit, in relation to Eskom’s supply of electricity to NCP are an abuse of process because this issue was at the heart of the NCP complaint to NERSA and was raised in its founding complaint. Yet the Rule 53 record shows that in the four years of the NERSA process, EMM never took issue with the NCP allegation that it was supplied by Eskom and not EMM. Nor did it ever contend that the Eskom licence precluded Eskom from supplying NCP with electricity. In view of EMM’s egregious delay in filing its answering affidavit and the prejudice caused to NCP by the delay, it is impermissible for EMM to raise disputes of fact on an issue which it elected not to engage in the four years of the NERSA proceedings. This, in my view, is a cogent reason for not condoning the filing of an answering affidavit that is two and half years out of time.

[32] The delays of EMM have prevented NCP from obtaining finality in this matter by preventing it from being able to take business decisions about its future in circumstances where, depending on the outcome of this litigation, it may have to leave Ekurhuleni, go off grid or shut down. In the process, the delays have put NCP in a position where its scope to raise capital to go off the grid or to move its plant out of Ekurhuleni has been narrowed by the increasing contingent liability on its balance sheet while this litigation remains unresolved. The delays have, accordingly, increased the risk that NCP may have to close operations if it is unsuccessful in this litigation. By increasing the risk that NCP will have to shut down, these delays have increased the risk of substantial prejudice to the public interest, in that there is now a much greater risk that the country will be exposed to a period without clean water supplies; the South African caustic soda market will be disrupted; and the downstream chemical industries at the Chloorkop site will have to shut down with catastrophic consequences to the country. All of these facts, with the exception of the potentially catastrophic consequences, are undisputed.

[33] In relation to the consequences of a potential closure of NCP, it is common cause that this may lead to a period of at least six months where the country is without adequate clean water supplies. EMM submitted on the basis of the unsubstantiated say so of Mr G Brimacombe (the Managing Divisional Director of Protea Chemicals)[9], in a letter, that this problem will last no longer than six months as Protea has the capacity to supply the country with packed chlorine should NCP not be in a position to do so, as Protea could increase its supply almost fourteen-fold from the existing 1600 tons that it provides to the market to 21 900 tons (NCP currently produces 21 300 tons per annum). This letter was followed up by a confirmatory affidavit, deposed to by Mr Brimacombe, after NCP had pointed out, in its heads of argument, that the claims in his earlier letter should be treated with scepticism because it offered no indication of how Protea was going to make this dramatic increase and did not disclose what supply capacity Sasol has, since it manufactures all the liquefied packed chlorine that Protea distributes. Mr Brimacombe’s letter, moreover, did not disclose what Protea’s supply arrangements with Sasol were, why Sasol could be expected to divert its chlorine manufacturing output to meeting Protea’s needs rather than using it for the highly profitable production of PVC, and what the packing capacity of the Protea plant was. All of these issues were raised by NCP in its heads of argument, yet none of them have been addressed by Mr Brimacombe in his affidavit. His affidavit is nothing more than a bald confirmation of the unsubstantiated conclusions in his letter.

[35] The supply agreement between Sasol and Protea as well as the Protea Major Hazard Risk Installation document have now been made available to the parties pursuant to a subpoena issued by NCP on Mr Brimacombe. These documents will cast light on what contractually committed supply of chlorine is available to Protea from Sasol, and what capacity Protea can utilize without requiring new regulatory approvals. NCP had invited EMM to place these documents before the Court so as to put some perspective on the unsubstantiated reasoning of Mr Brimacombe. EMM has declined to do so. In the circumstances, I’m inclined to draw the obvious inference that the documents cast serious doubt on Mr Brimacombe’s assertion that Protea would be able to supply the entire country’s liquefied packed chlorine needs within six months of the shutdown of NCP.

[36] EMM’s delay in filing its answering affidavit on time have also been used self-servingly by EMM’s to attempt to subject NCP to three further years of tariffs at the NERSA tariff level or higher, on the spurious basis that this review does not affect the validity of the annual tariffs that have been approved by NERSA pursuant to its original 2012 decision. Its delay must also be considered alongside its delays in the NERSA proceedings where its dilatory conduct ensured that a complaint lodged in October 2008 was ultimately resolved (albeit irregularly) only prospectively in December 2011. So by delaying the NERSA process, EMM was able to sustain an excessive tariff in relation to NCP for three years after the complaint was lodged. EMM’s delay of two and a half years in filing its answering affidavit is not only extreme but is wholly unexplained. The delay has caused prejudice to NCP and may cause catastrophic prejudice to the country. EMM seeks to raise disputes of fact in its answering affidavit, which it failed to raise in the NERSA process, but has offered no plausible explanation for not doing so. These reasons, cumulatively, justify my refusal to condone the unexplained and egregious late filing by EMM of its answering affidavit.

The Erroneous Local Government Power

[37] Central to the declaratory relief which NCP seeks in prayer 2 of its notice of motion, is the question of whether EMM has the exclusive entitlement to supply electricity to end-users within its jurisdiction. Both NERSA and EMM contend that EMM has the exclusive entitlement to supply electricity to end-users within its jurisdiction. NCP contends, to the contrary, that that view is wrong in law because it does not reflect the provisions of Eskom’s distribution licence which, until set aside,[10] governs the rights and obligations of Eskom to supply electricity to consumers such as NCP. In addition, it argues that the interpretation of the Eskom licence is a policy laden exercise best performed by the regulator and not suitable for judicial determination. I do not agree. Although the formulation of the terms of the Eskom licence is a policy laden exercise reserved for the regulator (NERSA), once that licence has been issued, its interpretation, like the interpretation of any other written instrument, is a purely legal issue and a matter for the courts - not the regulator.

[38] There are two Eskom distribution licences – the current one and the one that preceded it. The current licence was issued on 25 March 2010 and operates with effect from 1 July 2007. The former was issued in 2005 and governed the period from 2001 to 30 June 2007. A material term of both licences is the obligation on Eskom to supply electricity to all applicants within Eskom’s licensed area of supply. The former licence allowed Eskom not to supply an applicant unless that applicant was able to make satisfactory arrangements for payment. Both licences provide that a customer who is supplied by a municipality or any other licensed distributor, at the date of commencement of the respective licences, falls outside their ambit. The provisions of both licences must be read together with section 21(5) of the Electricity Regulation Act, 2006 (the ERA) which provides:

‘A licensee may not reduce or terminate the supply of electricity to a customer, unless −

(a) the customer is insolvent;

(b) the customer has failed to honour, or refuses to enter into, an agreement for the supply of electricity; or

(c) the customer has contravened the payment conditions of that licensee.’

The dispute in relation to the declaratory relief was raised for the first time after commencement of the 2010 Eskom licence. The state of affairs under the 2005 licence is, therefore, irrelevant to the relief sought in prayer 2 of the notice of motion.

[39] It is common cause that Eskom supplies electricity to residential, industrial, agricultural and mining customers in Ekurhuleni. EMM does not contend that such supply is illegal; only that it would like to have it phased out so that it can exercise exclusive control over electricity distribution within its municipal area. There is, thus, no territorial bar to Eskom’s supply of electricity to NCP. The only possible bar relates to the paragraph (a) of Schedule 1 to the Eskom licence, which was invoked by EMM to claim that the Eskom licence does not cover NCP: It reads:

‘Customers being supplied by a municipality or any other Licensed Distributor at the date of commencement of this licence are excluded from this licence.’

NCP contends that that clause does not assist EMM because when the Eskom licence came into force in July 2007, NCP had already built the new substation and was being supplied with electricity not by EMM, but by Eskom. NCP finds support for this submission in NERSA’s arbitration ruling where it made the following technical findings:

‘The [Chloorkop] substation receives its supply from Eskom via two 132kV distribution lines. The substation consists of four 132/11 kV transformers, three of which directly supply NCP and one which is used to supply the EMM load.’

…

‘NCP does not receive electricity supply from EMM’s 11kV distribution system as it is directly connected to the Eskom network via three Eskom 132/11 kV transformers.’

The technical issues which NERSA had to decide in the complaint before it related to whether NCP was supplied by the Eskom grid. Those technical issues were uncontested by the EMM before NERSA and were consequently resolved by NERSA within its area of expertise in favour of NCP. I, therefore, see no reason for purposes of substituting NERSA’s decision with that of the Court not to accept the technical findings of NERSA. These findings are, in any event, consistent with the common cause facts which are central to the assessment of NCP’s claim for declaratory relief in relation to the obligation of Eskom to contract with it.

[40] The common cause facts are that: the NCP substation is directly connected to the Eskom grid at Chloorkop by means of cables that run from Eskom transformers T2, T3 and T4 into the substation. NCP paid for the new substation, all of the equipment in the new substation and the cables that connect it to the Eskom grid. NCP managed the project for the construction of the substation and the new Eskom T4 transformer to which it is connected. NCP has been solely responsible for the control, maintenance and operation of the new substation at all times since it was built. NCP and Eskom handle matters of load management and maintenance relating to the new substation directly with each other. At the time that the substation was built, EMM was not able to meet the current demands of NCP for electricity. In this regard, NCP maintains that the history of power outages caused by faults on the EMM reticulation showed that EMM lacked the capacity to provide NCP with the reliable supply of power that it required.

[41] It is common cause that in the period leading up to 2006, the capacity of EMM’s Chloorkop substation was insufficient to meet the increased electricity needs of NCP and EMM had no other means of meeting these needs unless NCP paid for new capacity in a new substation. EMM is not, itself, physically able to disconnect NCP from the supply of electricity that is drawn from the Eskom grid. It was only able to disconnect NCP in 2013 by asking Eskom to do so. Lastly, Eskom itself has no objection to concluding an electricity supply contract with NCP and abides the relief claimed by NCP in this regard. However, it requires the consent of EMM to contract with NCP and the approval of NERSA. That consent has been withheld by the EMM.

[42] The declaratory relief sought by NCP in prayer 2 of the notice of motion must also be considered against the following facts relevant to the role of NCP in relation to water purification in South Africa, all of which are common cause or undisputed. Liquefied chlorine is necessary for water purification in South Africa. At the time that the NERSA complaint was lodged and at the time that the present application was launched, NCP was the only manufacturer of liquefied chlorine for water purification in the entire country. Liquefied chlorine is highly toxic and cannot readily be stored or imported. Liquefied chlorine is made through a process of electrolysis in which electricity is used as a raw material to produce liquefied chlorine and caustic soda in equal units. Prior to the 2015 electricity tariff increase which EMM obtained behind the back of NCP, electricity costs already amounted to 52% of NCP’s input cost of a unit of liquefied chlorine and caustic soda. Because of the competitive nature of the caustic soda market, increases in municipal electricity tariffs cannot be recovered through commensurate increases in caustic soda prices charged by NCP and must be loaded onto the price of liquefied packed chlorine. The end consumers of liquefied packed chlorine are the municipalities across the country that are responsible for the distribution of drinking water. So any increases raised by EMM on the price it purports to charge NCP for electricity will end up having to be paid by all other municipalities in the country if they are to be recovered by NCP.

[43] It is furthermore common cause that since the application was launched, Protea chemicals has entered the market for liquefied packed chlorine which is used for water purification. However, Protea does not produce chlorine itself but it distributes chlorine that is supplied to it by Sasol, who is wholly independent of municipal electricity charges. NCP still accounts for more than 90% of the sales of liquefied packed chlorine for water purification purposes in South Africa. The entry of Protea into the market will quickly make NCP uncompetitive if it has to load municipal electricity charges onto its prices for liquefied packed chlorine, and will render NCP’s operations unsustainable. In addition, there will be at least a six month period in which South Africa is without sufficient liquefied packed chlorine to meet its water purification needs if NCP is forced to close down.

[44] Thus having due regard to the technical findings of NERSA in the arbitration, the common cause facts and the current Eskom licence read with section 21(5) of the Electricity Regulation Act, I am of the view that Eskom is obliged to supply NCP with electricity on application by NCP. The Eskom licence is legally unobjectionable as no Act of Parliament gives municipalities the exclusive right to supply electricity to consumers within their area of jurisdiction. EMM and NERSA do not point to any such legislation, but their argument to the contrary seems to proceed from the premise that section 156(1)(a) of the Constitution gives EMM the exclusive power to supply electricity within its area of jurisdiction. Section 156(1)(a) of the Constitution provides:

‘A municipality has exclusive authority in respect of, and has the right to administer –

(a) the local government matters listed in Part B of Schedule 4 and Part B of Schedule 5.’

“Electricity and gas reticulation” are listed in Part B of Schedule 4 as a local government matter. Both EMM and NERSA argue that municipalities enjoy exclusive executive authority in respect of this functional area of competence. In other words, they contend that only municipalities can exercise executive authority in respect of matters pertaining to electricity reticulation. They find support for this interpretation in the Electricity Regulation Act which defines “electricity reticulation” to mean the “trading or distributing of electricity and includes services associated there with”.

[45] I disagree with the interpretation of “electricity reticulation” which NERSA and EMM contend for, as a constitutional provision cannot be interpreted with reference to subordinate legislation. “Electricity and gas reticulation” in Schedule 4 of the Constitution must be interpreted in accordance with the ordinary meaning of the word “reticulate”. The Concise Oxford English Dictionary (9th edition) defines “reticulate” as:

‘1. divide or be divided in fact or appearance into a network; 2 arrange or be arranged in small squares or with intersecting lines’

The Meriam Webster Dictionary (online) contains a similar definition:

‘to divide, mark, or construct so as to form a network <municipalities that reticulate electricity to consumers>’

The Collins English Dictionary (online) likewise defines “reticulate” as “to form or be formed into a net.”

When Schedule 4 of the Constitution refers to “electricity reticulation” it refers to the establishment and operation of an electricity distribution network and the provision of electricity.

[46] Section 156(1)(a) of the Constitution, properly construed, does not give a municipality the exclusive power to supply electricity within its area of jurisdiction. The Constitution requires back to back local government for the entire country, including in rural areas which previously had no local government at all. Section 156(1)(a) of the Constitution cannot be interpreted to mean that as of February 1997, no-one other than a municipality would be entitled to supply electricity to consumers. Therefore, in so far as section 156(1)(a) read with Schedule 4 to the Constitution speaks of the exclusive authority of a municipality and its right to administer the local government matter of electricity reticulation, this must be interpreted to mean merely that a municipality is entitled to set up its own electricity reticulation network. And that it is the only organ of state entitled to administer that network, since the administration of its own electricity reticulation network is a necessary element of municipal autonomy.

[47] The Constitution does not require an outcome that where national legislation in the form of the Electricity Regulation Act provides for private persons and other organs of state to be licenced to supply electricity[11], no-one other than a municipality is entitled to supply electricity within the area of that municipality. A fortiori it cannot mean that a consumer like NCP is obliged to contract with the EMM for electricity in circumstances where, as has been demonstrated:

(a) the substation from which NCP draws its electricity is connected directly to the Eskom grid and was paid for by NCP and not EMM;

(b) the construction of the substation and the new Eskom transformer supplying it was managed by NCP and not the EMM;

(c) that substation is managed, maintained and controlled entirely by NCP and not the EMM; and

(d) Prior to the construction of that substation, EMM was not able to meet the demand for electricity required by NCP.

To suggest in such circumstances that NCP should be obliged to contract with EMM and to pay it a substantial surplus for electricity which it does not provide in any way, would be inconsistent with the judgment of the Constitutional Court in Rademan where it stated:

‘where a municipality claims from a resident, customer or ratepayer payment for services, the resident, customer or ratepayer is only obliged to pay the municipality for services that have been rendered. There is no obligation on a resident, customer or ratepayer to pay the municipality for a service that has not been rendered.’[12]

[48] To reiterate, when Schedule 4 of the Constitution refers to “electricity reticulation” it refers to the establishment and operation of an electricity distribution network. That is not what takes place between Eskom and NCP at the NCP power station. Eskom has not established any distribution network in Ekurhuleni through which NCP is supplied at the power station. Rather, it steps down its transmission network to 11kV at the four transformers at the Eskom substation and makes a single connection from three of those transformers to the NCP substation. The transfer of power through direct connections from an Eskom substation to an end user is not “reticulation” because a direct line connection is not the creation of a network. Such supply of electricity accordingly falls outside the ambit of Schedule 4 of the Constitution. This is consistent with a purposive interpretation of Schedule 4 because industrial or mining operations which consume such large amounts of electricity, that they can take the full output of a step-down transformer directly from an Eskom substation, are not the sorts of consumer that are appropriately served exclusively by municipalities.

[49] Finally, and as contended for by NCP, the question of whether the supply of electricity to NCP as a raw material for the production of liquefied packed chlorine falls within the exclusive executive competence of the EMM over “electricity reticulation” is one which has to be determined in accordance with the “substantial measure” test which the Constitutional Court has adopted for the purposes of sections 75 and 76 of the Constitution. In Tongoane[13], the Constitutional Court held that, the tagging of a Bill as affecting the provinces or not affecting the provinces must be informed by the purpose of sections 75 and 76. That purpose is to give provinces a larger say in the national legislative process through the National Council of Provinces (NCOP) in relation to all legislation which substantially affects them. Accordingly, irrespective of their “pith and substance”, Bills which substantially affect the provinces are required to be considered by Parliament in the section 76 process which gives greater weight to the NCOP. The Court went on to hold that such an approach was also consistent with section 40(1) of the Constitution which constitutes government “as national, provincial and local spheres of government which are distinctive, interdependent and interrelated”.[14]

[50] By parity of reasoning, the purpose of section 156(1)(a) of the Constitution read with Parts B of Schedules 4 and 5 is to accord a measure of autonomy to municipalities over matters that are appropriately administered at a local level.[15] So the question whether the exercise of executive power over a Part B Schedules 4 or 5 matter, in any particular case, falls within the exclusive competence of a particular municipality turns on the question of whether the exercise in question substantially affects other governments or functional areas over which local government does not have original constitutional competence. In the present case, the provision of electricity to NCP clearly falls outside the exclusive executive competence of EMM because it has substantial effects on the capacity of the country as a whole to have access to a secure supply of affordable purified drinking water. And if EMM imposes retail electricity tariffs on NCP, it is effectively causing all other municipalities in the country to pay a premium on their purified water for its benefit.

[51] To sum up, in its complaint to Eskom NCP expressly requested a ruling from NERSA that it should be entitled to contract directly with Eskom for the supply of its electricity. In its ruling, NERSA found as a fact that NCP was supplied with electricity directly from the Eskom grid and was not supplied by the EMM. However, it assumed that Eskom was not entitled to contract with NCP because it was of the view that, under the Constitution, EMM has exclusive power to provide consumers with electricity within its area of jurisdiction. For the reasons set out above, that legal view is wrong. There is no basis for the Court to defer to NERSA on matters of law. Having regard to the finding that NERSA made within its area of expert competence (i.e. that at the level of fact, NCP is not supplied with electricity by EMM, but rather by Eskom) and that EMM does not have exclusive power to provide consumers with electricity within its area of jurisdiction, I am inclined to make an order setting aside the NERSA decision and substituting it with an order that NCP is entitled to contract with Eskom for the provision of its electricity at the Chloorkop plant. Even if I were not inclined to substitute the NERSA decision with the decision of the Court, on the legal position as it stands NCP will still be entitled to the declaratory relief sought in prayer 2 of its notice of motion as independent relief. Notwithstanding the provisions of section 21(2) of the Electricity Regulation Act, should NCP and Eskom be unable to agree on the terms of an electricity supply agreement NERSA will have jurisdiction over any dispute as to what are appropriate terms for such a supply contract.

The Counter Application

[52] EMM seeks, pursuant to the order setting aside the NERSA decision, a declaratory order that NCP remains bound by the Special Tariffs applicable to it, which were approved by NERSA and subsequently promulgated by EMM for the years 2013 to 2015 as set out below.

a. The Special Tariff published in the Provincial Gazette Extraordinary for the Province of Gauteng No.159 on 13 June 2012;

b. The Special Tariff published in the Provincial Gazette Extraordinary for the Province of Gauteng No.152 on 10 June 2013;

c. The Special Tariff published in the Provincial Gazette Extraordinary for the Province of Gauteng No.134 on 6 June 2014

d. The Special Tariff published in the Provincial Gazette Extraordinary for the Province of Gauteng No. 229 of 12 June 2015

EMM contends that the setting aside of the NERSA decision at the instance of NCP has no effect on EMM’s Special Tariffs for the applicable period, since there is no additional challenge to them. This, so it contends, means that the tariffs for the applicable period remain in place and NCP remains liable for the payment of electricity at such rate. EMM argues that a tariff will always apply to NCP until it is no longer bound by EMM’s electricity by-laws.[16]

[53] During argument, EMM took the Court to various provisions of the electricity by-laws. The dispute between NCP and EMM on the nature of liability under the by-laws for electricity consumption is the subject of the action that EMM instituted against NCP under case number 35456/2013. NCP’s defence in the action is that on a proper construction of the electricity by-laws, they give rise to claims only against persons (whether or not they are consumers) who use a “supply” as defined in the by-laws.[17] Clause 1 of the electricity by-laws[18] contains the following definitions: “‘supply’ means a supply of electricity from the supply main” and “’supply main’ means any cable or wire forming that part of the Council's electrical distribution system to which service connections may be connected.” NCP’s defence in the action is that since NCP is not supplied with electricity from any part of EMM’s electrical distribution system, EMM would not liable under the by-laws to pay any amounts to the EMM. Since the question of NCP’s liability under the by-laws forms the subject matter of the action referred to above, I do not intend to express a view on their interpretation.

[54] I will, however, express a view on the contention that NCP brought the present review with dirty hands because it had not been paying the amounts purportedly invoiced to it by EMM under the by-laws. It must be borne in mind, concerning this contention, that at the time that NCP launched these review proceedings it legitimately believed that it was common cause that it drew its electrical supply not from the EMM electrical distribution system, but from the Eskom grid. As already alluded to, this proposition had been raised by NCP in the context of the NERSA dispute on at least eight occasions and had never once been disputed by EMM. What’s more, NERSA had found as a fact that NCP does not receive electricity supply from the EMM 11kV distribution system as it is directly connected to the Eskom network via three Eskom 132/11 kV transformers. So, from the perspective of NCP, on the basis of facts which appeared to be common cause, the by-laws gave EMM no claim against it for payment of the invoices which EMM had purported to issue to it.

[55] Lastly, pertaining to the contention that absent a challenge to the special tariffs applicable to NCP, it remains liable for the payment of electricity to EMM at such rate for the applicable period, it is important to bear in mind that unless and until NERSA validly rules that NCP must conclude an electricity supply contract with EMM, the promulgated tariffs do not apply to NCP because it has no contract with EMM and does not draw its electricity from the EMM’s supply main. So the contention that NCP is bound by the promulgated tariffs is simply wrong. Thus, absent a valid decision by NERSA to the effect that NCP must contract with EMM, any review of the promulgated special tariffs would amount to an exercise in futility. A court hearing such an application could review and set aside the promulgated tariffs, but until NERSA has made a fresh determination pursuant to the present review proceedings, that Court would not be able to determine whether NCP was going to be treated as an EMM customer at all, and what tariff should replace the NCP tariff based on the irregular NERSA decision of 2012. So the proposed review application would end with everything left in limbo waiting for the present review application to be finalised and a replacement decision to be taken by NERSA or this Court. For these reasons, therefore, the counter application falls to be dismissed.

Costs

[56] EMM had made allegations of fraud against NCP and two of its directors in support of its counter-application for both review relief and declaratory relief. It abandoned its counter-application but has not unequivocally withdrawn its allegation that they misled NERSA, EMM and the Court into believing that NCP will be unsustainable at Tariff D and failed to disclose that NCP was making provision for payment of tariff D, thus persuading NERSA to afford NCP the benefit of the reduced special tariff to the prejudice of EMM. Since these allegations have now become irrelevant to any relief claimed by EMM in its counter-application, I do not intend to make a finding on them. However, the directors against whom these allegations have been made, find themselves in a position where an allegation of fraud remains hovering over their heads and, may have to institute defamation proceedings to clear their names at great expense and inconvenience to themselves. In addition, EMM seeks declaratory relief in a counter application, where the dispute there is the central dispute in an action which EMM instituted against NCP under case number 35456/2013. EMM has, moreover, chosen to defend the NERSA decision in circumstances where NERSA itself accepted that the decision was flawed and subject to being set aside, but then conceded at the hearing that the decision was indeed reviewable. This kind of conduct, in my view, justifies a punitive costs order against EMM.

[57] In the result, I make the following order:

1 Reviewing and setting aside the decision of the first respondent (the National Energy Regulator of the South Africa) dated 29 February 2012 and conveyed to the Applicant (NCP Chlorchem (Pty) Ltd) on 15 March 2012.

2 Declaring that the third respondent (Eskom) is not entitled to refuse to enter into an electricity supply agreement with the Applicant.

3 Directing the first respondent and the second respondent (Ekhurhuleni Metropolitan Municipality) jointly and severally to pay the costs of the Applicant in the principal application, including the costs of two counsel;

4 Dismissing the counter application; and

5 Directing the second respondent to pay the Applicant’s costs of the counter application on the scale as between attorney and client including the costs of two counsel.

_____________________________

F KATHREE-SETILOANE

JUDGE OF THE HIGH COURT OFSOUTH AFRICA

GAUTENG LOCAL DIVISION,

JOHANNESBURG

Counsel for the Applicant: Chaskalson SC with N Rajab-Budlender

Instructed by: D’ Arcy-Herrman Raney

Counsel for the First Respondent: Van Eeden SC with K Hopkins and T Moretlwe

Instructed by: Edward Nathan Sonnenbergs Inc

Counsel for the Second Respondent: Bham SC with I Currie

Instructed by: Kunene Ramapala Inc

Date of Judgment: 17 October 2016

[1] The NCP head office is supplied separately from the plant and uses electricity from the EMM distribution network. These accounts are paid in full by NCP and form no part of this dispute.

[2] Section 4(a) (i (aa) of the Electricity Regulation Act.

[3] Section 4(a)(ii) of the Electricity Regulation Act.

[4] Section 4(b)(i) of the Electricity Regulation Act.

[5] Total Support Management (Pty) Ltd and another v Diversified Health Systems (SA) (Pty) Ltd and another [2002] ZASCA 14; 2002 (4) SA 661 (SCA) paras 24-25.

[6] Minister of Military Veterans v Motau and others 2014 (5) SA 69 (CC) para 82.

[7] Vidavsky v Body Corporate of Sunhill Villas 2005 (5) SA 200 (SCA) paras 12-15; Chelsea West (Pty) Ltd v Roodebloem Investments (Pty) Ltd 1994 (1) SA 837 (C) at 845F-J; Perdickis v Jamieson 2002 (6) SA 356 (W) at 363B-C.

[8] NCP letter of 20 August 2007, NCP letter of demand dated 13 June 2008; Covering letter to the NCP complaint dated 2 October 2008, Affidavit in support of complaint; Letter to Minister of Energy dated 30 April 2011; Letter to NERSA dated 24 August 2011; and NCP submission to NERSA dated 23 Nov 2011.

[9] Protea Chemicals is a division of Omnia Group (Pty) Ltd.

[10] Oudekraal Estates (Pty) Ltd v City of Cape Town and Others 2004 (6) SA 222 (SCA)

[11]Section 10 of the Electricity Regulation Act provides for persons other than organs of state to apply to hold a licence to supply electricity. It provides: ‘Application for licence (1) (a) A person who has to hold a licence in terms of section 7 must apply to the Regulator for such licence in the form and in accordance with the prescribed procedure. (b) Such an application must be accompanied by the prescribed application fee. (2) Any application contemplated in subsection (1) must include- (a) a description of the applicant, including vertical and horizontal relationships with other persons engaged in the operation of generation, transmission and distribution facilities, the import or export of electricity, trading or any other prescribed activity relating thereto; (b) such documentary evidence of the administrative, financial and technical abilities of the applicant as may be required by the Regulator; (c) a description of the proposed generation, transmission or distribution facility to be constructed or operated or the proposed service in relation to electricity to be provided, including maps and diagrams where appropriate; (d) a general description of the type of customer to be served and the tariff and price policies to be applied; (e) the plans and the ability of the applicant to comply with applicable labour, health, safety and environmental legislation, subordinate legislation and such other requirements as may be applicable; (f) a detailed specification of the services that will be rendered under the licence; (g) evidence of compliance with any integrated resource plan applicable at that point in time or provide reasons for any deviation for the approval of the Minister; and (h) such other particulars as the Minister may prescribe.’

[11]Section 10 of the Electricity Regulation Act provides for persons other than organs of state to apply to hold a licence to supply electricity. It provides:

‘Application for licence

(1) (a) A person who has to hold a licence in terms of section 7 must apply to the Regulator for such licence in the form and in accordance with the prescribed procedure.

(b) Such an application must be accompanied by the prescribed application fee.

(2) Any application contemplated in subsection (1) must include-

(a) a description of the applicant, including vertical and horizontal relationships with other persons engaged in the operation of generation, transmission and distribution facilities, the import or export of electricity, trading or any other prescribed activity relating thereto;

(b) such documentary evidence of the administrative, financial and technical abilities of the applicant as may be required by the Regulator;

(c) a description of the proposed generation, transmission or distribution facility to be constructed or operated or the proposed service in relation to electricity to be provided, including maps and diagrams where appropriate;

(d) a general description of the type of customer to be served and the tariff and price policies to be applied;

(e) the plans and the ability of the applicant to comply with applicable labour, health, safety and environmental legislation, subordinate legislation and such other requirements as may be applicable;

(f) a detailed specification of the services that will be rendered under the licence;

(g) evidence of compliance with any integrated resource plan applicable at that point in time or provide reasons for any deviation for the approval of the Minister; and

(h) such other particulars as the Minister may prescribe.’

[12] Rademan v Moqhaka Local Municipality 2013 (4) SA 225 (CC) para 42.

[13] Tongoane v Minister of Agriculture & Land Affairs 2010 (6) SA 214 (CC) at paras 63-67

[14] Tongoane para 67.

[15] Johannesburg Metropolitan Municipality v Gauteng Development Tribunal and Others 2010 (6) SA 182 (CC) para 50.

[16] Ekurhuleni Metropolitan Municipality Electricity By-Law, Provincial Gazette NO.102 of 24 April 2002 (electricity by-laws).

[17] See electricity by-law 3(1), 3(3), 7(1) and 7(7).

[18] electricity by-law 1.