Service Rendering Agreement - DOC

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                         (hereinafter referred to as “the Agreement)


                                     Senqu Municipality
                        (hereinafter referred to as “the Municipality”)


                                     Eskom Holdings Ltd
                            (hereinafter referred to as “Eskom”)


WHEREAS from the 2003/04 financial year, two new supplementary budget components
and windows have been added to the local government equitable share to accelerate the
provision of Free Basic Services to low-income households;

AND WHEREAS the municipality needs to enter into a contract with Eskom in the line
with Electricity Basic Services Tariff (EBSST) policy initiated by the Department of
Minerals and Energy (DME) and sanctioned by Cabinet, to transfer the funds for
providing the free basic electricity level of the municipal service in question from the
municipality to Eskom;
Be it now therefore agreed by the Municipality and Eskom as follows:

   1.      DEFINITIONS:

           In this Agreement, unless the context otherwise indicates-
           “commencement date” means the date referred to in paragraph 3.1;

           “financial year” means a 12(twelve) month period commencing on 1 July
           and ending 30 June.

           “EBSST Policy” means the Electricity Basic Services Support Tariff
           (EBSST) policy published in Government Gazette No 25088 of 4 July 2003.

           “free basic electricity” or “FBE” means the electricity referred to in clause

           “parties” means the Municipality and Eskom;

           “VAT” means Value-Added Tax as provided for in Section 7 of the Value-
           Added Tax No 89 of 1991, as amended from time to time.

           “tax invoice” means a document provided as required by Section 20 of the
           Value-Added Tax No 89 of 1991, as amended from time to time.

   2.      PURPOSE

           This agreement shall constitute a contractual arrangement specifying the
           details of Free Basic Electricity (“FBE”) to be rendered, at the instance
           of the Municipality, by Eskom to Eskom’s customers falling within the
           municipal boundaries of the municipality.

     3.1The Agreement will commence on 1st October 2003 or date of
     signature, whichever is later.

     3.2The Agreement will come to an end on 30 June 2004, unless the parties
     have agreed in writing to extend it.


     4.1 Eskom shall, on behalf of the municipality, provide FBE through its
         prepaid (tokens) meters and conventional (credit) meters for
         distribution to Eskom’s customer falling within the municipal
         boundaries of the Municipality.

     4.1 The customers eligible or earmarked by the municipality for the
         FBE shall receive prepaid tokens or be credited for electricity issued
         through conventional meters refer to in sub-clause 4.1 hereof ,on a
         targeted basis as provided in the EBSST policy or as agreed between
         the municipality and Eskom, taking into account Annexure “A”

     4.2 Subject to Annexure “A” hereto, Eskom shall provide free 50kWh of
         electricity per eligible household per month, based on the
         recommended National Tariff for the provision of FBE of 34,5 cents
         per kWh (plus VAT) as amended by the National Electricity Regulator
         from time to time.

     4.3 Eskom shall furnish the Municipality with monthly tax invoices detailing
         the number of FBE electricity units issued and the total amount due to it.

        5.1 The Municipality shall at the beginning of each financial year inform
            Eskom of the amount of the funding to be collected for the rendering of
            FBE as contemplated in Subsection 4.3.

        5.2 The tax invoices referred to in sub-clause 4.4 shall constitute prima facie
            proof of the amount of funding due by the municipality to Eskom.

        5.3 Should the Municipality fail to transfer funds to Eskom in terms of
            clause 6.1 hereof, Eskom may, upon 30 day written notice to the
            municipality, discontinue the provision of FBE.


        6.1 With effect from commencement date, the Municipality shall on a
            monthly basis settle the tax invoice to Eskom for the FBE provided
            to households during the preceding month.

        6.2 The amount claimed by Eskom shall be calculated by using the rates
            detailed in sub-clause 4.3 hereof.

        6.3 The Municipality shall monitor the provision of FBE by Eskom, and take
            appropriate where such FBE has not been rendered as agreed by the
            parties; subject to the provision that, before taking an appropriate action,
            the municipality shall give Eskom at least 30 days written notice.


        7.1 Eskom shall consolidate all its monthly accounts in respect of the FBE
            rendered to various households within the area of the municipality and
            forward a summary to the municipality.
7.2 Eskom shall at all times full, accurate and up to date records relating
    to the provision of FBE to households as agreed to between the
    parties, including levels of provision to each household and particulars of
    meter numbers or customers or customer names and consumption.

7.3 Eskom shall also keep detailed records of identified consumers who
    did not receive FBE allocation for any reason not limited to service
    termination due to non-payment, hardware tampering and illegal
    connections and under-utilizations for consolidation with payments of the

7.4 Eskom shall provide a suitable banking account with a registered bank
    into which energy costs as referred in clause 4.3 can be deposited by the

7.5 At the end of the financial year, all financial and other records pertaining
    to the provision of FBE shall be made available by Eskom on request of
    the municipality so that the municipality can verify that clause 4.3is
    complied with.

7.6 Eskom shall provide the municipality and the Department of Provincial
    and Local Government (dplg) with monthly reports which detail the

             7.6.1   number of households provided with FBE in question;

             7.6.2   the FBE level provided i.e. percentage of FBE issued on
                     the total eligible customers.

7.7 Eskom will be required to interact with consumers concerning matters
    related to the provision of the FBE in accordance with sub-clause 4.2

        This agreement constitutes the sole and entire agreement between the Parties
        and supersedes all previous negotiations, arrangements of agreements in
        respect of the subject matter of this agreement.


        This agreement shall be interpreted in accordance with the laws of the
        Republic of South Africa.


        Any changes, amendments, relaxation and/or additions to the Agreement
        shall be agreed upon in writing and duly signed by the official
        representatives of both parties.


        No waiver by a party of any breach, failure or default in performance by the
        other party, and no failure, refusal or neglect by a party to exercise any right
        hereunder or to insist upon strict compliance with or performance of the
        other party’s obligations under this agreement shall constitute waiver of the
        provisions of this agreement and a party may at any time require strict
        compliance with the provisions of this agreement.


        In the event that any one or more of the provisions contained in this
        agreement shall far any reason be held to be invalid, illegal or unenforceable
        in any respect, such invalidity, illegality or unenforceability shall not affect
        any other provision of this agreement, but this agreement shall be construed
        as if such invalid, illegal or unenforceable provision had never been set forth
        herein, and he agreement shall be carried out as nearly as possible according
        to its original terms and intent.
         13.1      Neither party shall cede, assign, transfer, make over or delegate
             any right or obligation acquired or incurred in terms of this Agreement,
             without the prior written consent of the party.

            13.2       Notwithstanding the provision of sub-clause 13.1 hereof, Eskom
                shall be entitled to transfer, assign, cede or delegate its rights or
                obligations to any new legal entity which is formed as a result of the
                restructuring of the Electricity Distribution Industry (EDI) and the
                Electricity Supply Industry (ESI).


            14.1       Any dispute relating to this Agreement shall be referred in writing
                to the municipality and the relevant Regional Manager of Eskom or any
                official acting in a similar capacity for resolution. Thereafter, if no
                solution is found, it shall be referred, in writing, to the Managing
                Director/Chief Executive Officer of Eskom, the Municipal Manager of
                the Municipality and the Director of the Department of Provincial and
                Local Government and the shall endeavor to settle the dispute.

            14.2      If the dispute is not settled in terms of sub-clause 4.1 within
                30(THIRTY) days, the matter may, at the instance of any of the parties,
                be referred to arbitration in terms of the Rules of the Arbitration
                Foundation of South Africa.

            14.3      The language of the arbitration shall be English.

            14.4      The place of arbitration shall be within the Republic of South

            14.5     The procedural Law of the Republic of South Africa shall apply
                where the Rules are silent.
       14.6      Notwithstanding the provision of sub-clause 14.2, any party may
           seek urgent interim relief from a competent court.


       15.1       There shall be a serious breach of contract if any party fails to
           comply with any duty or obligation in terms of the Agreement that
           affects the ability of or makes it impossible for the other party to exercise
           or perform its powers, rights, duties or obligations in terms of the

       15.2      Whenever a breach of contract envisaged by sub-clause 15.1
           occurs, the party responsible for the breach must be given an opportunity
           to remedy such breach within a period of not more than 3 months.

       15.3       Should a party breach any of the terms and conditions of this
           agreement and fail to remedy such breach in line with sub-clause 15.2,
           the aggrieved party shall, without prejudice to any of its other rights, be
           entitled to:

                    15.3.1 immediately cancel this agreement; and

                    15.3.2 Claim damages from the party who is in breach.


       16.1       The National Treasury may, subject to Section 216 of the
           Constitution Act of 1996, withhold the transfer of funds, and further
           subject to the Department of Provincial and Local Government
           submitting a written report at least 21 days before such allocation is due
           to be transferred, setting out the facts reflecting a serious or persistent
           breach of an allocation. The Minister of Finance may by notice in the
           Gazette, approve that such an allocation or any portion of such allocation
           be withheld from the municipality in order to be utilized to meet that
           municipality’s outstanding statutory financial commitments.Therfore,
           should a municipality default in terms of this Funding Agreement and
           subject to the processes as prescribed by the legislation having been
           undertaken, an appropriate portion of the funding may be transferred
          directly to Eskom to offset expenditure incurred for the provision of Free
          Basic Electricity as agreed to in this Funding Agreement.

       16.2       Notwithstanding the provision of sub-clause 16.1 hereof, Eskom
           shall be entitled to exercise any rights it has in law, against the
           municipality, as a result of the failure contemplated herein.


         17.1 Either party shall be excused from the non-performance of any of
              its obligations under this Agreement if caused by any factor outside
              the control of the party, such factor including, without limitation,
              fire, storm, damage, inclement weather, riots, breakdown of
              machinery or equipment, persistent vandalism of equipment, severe
              unavailability of materials and technologies, strikes, lock-outs,
              sanctions, embargoes and actions and of the legislative, or any other
              extreme external factor that renders the execution of this Agreement

         17.2 The affected party shall bear the onus of proving that an event of
              force majeure has occurred, and will keep the other party informed
              in writing of the circumstances, which the affected party claims to
              amount to force majeure.

         17.3 If force majeure persist for a continuous period of more than
              3(THREE) consecutive months, either party may terminate this
              Agreement in respect of such operating entity affected thereby with
              immediate effect on 30(THIRTY) days written notice to the other

        18.1      The Parties choose as their respective domicillia citandi et
            executandi for all purposes under the Agreement, whether in respect of
            court process, notices or documents or communications of whatever
            nature, the following addresses:

        The Municipality

        Address :             19 Murray Street
                              Lady Grey

        Telephone number :      051-6030019

       Facsimile number :       051-6030445


      Address :                Private Bag x 1
                               Beacon Bay

       Telephone number :       043-70325588

       Facsimile number :        043-7032412

        18.2      Any notice or communication required or permitted to be given in
            terms of the Agreement shall be valid and effected in writing.
SIGNED by the parties and witnessed on the dates and at the following
places respectively.

The Municipality:

DATE              PLACE           WITNESSES               SIGNATURE

                                                   For:   The Municipality

10/12/2003       Lady Grey        ……………….                 …………...........

                            1.   ………………..

                            2.   ………………..

  Eskom :

  DATE              PLACE         WITNESSES                  SIGNATURE

                                                          For:    Eskom

  ………….           ……………            …………………..                     ……………..

                            1.     ……………………..

                            2.     ……………………...
Guide for the engagement of Municipalities re EBSST

1. Funding agreements

       1.1 DPGL has now sent the final pro forma funding Agreement to municipalities.
           We faxed letters to the Municipal Managers, requesting them to sign two
           originals thereof and return to us together with their proposals for the
           implementation of EBSST in their area of jurisdiction. The Municipality must
           provide the number of qualifying customers as this must be specified on the
           Funding Agreement.

       1.2 We have also requested that they contact us to arrange a meeting to discuss

2. Eligible Customers :
        2.1 We have already provided customer data in electronic format and maps,
            indicating    villages where Eskom supplies electricity, to municipalities.

       2.2 Municipalities will decide which customers are eligible for EBSST.
           Customers that are matched against the Eskom database and are eligible, can
           be “flagged” on the spreadsheet an returned to Eskom in electronic format
           .Once the have been confirmed as eligible, Eskom will deal with all
           Customers related queries.
       2.3 Customers not appearing on the Eskom database and who are enquiring about
           EBSST, must be referred to the relevant Municipality. The Municipality must
           then complete a registration form. The registration forms will be provided to
           the municipalities by Eskom in book form. The original must be returned to
           Eskom, the 1st copy given to the Customer in case of queries and a copy of the
           registration form is that the meter serial number must be filled in and a used
           token must be attached. It is also important that the Customer identifies a
           preferred Vendor.

 3.Claims process:

       3.1 Eskom will claim the cost of the Free Basic kWh for eligible Customers
           who collected their ESBSST tokens from Vendors. This will be calculated
           at 34.5 cents/kWh.

       3.2 Because of the way Eskom’ s vending system works it is possible that there
           will be an under recovery one month and an over recovery the next month.
        Because we operate an off-line vending system, it is possible that tokens
        vended in month A will only be reflected in month B. This will happen if
        Customers collect their FBE token during the last few days of the month.
        Municipalities must take note of as this how our system operates.

4. What Eskom does to vend FBE :

     4.1 On receipt of the Registration form the Municipality we have to capture the
         details on Cordaptix.

     4.2 Once the details are captured we make a new Customer Swipe Card from the
         new information on Cordaptix.

     4.3 The meter is then registered on a CPU(Credit Dispensing Unit) usin the
        meter detail prior to updating Cordaptix.

     4.4 Key change tokens are made on the CPU to reconfigure the Customer’s meter
         to the tariff that supports FBE.

     4.5 The new Customer Swipe Card and the Key change tokens are packaged
         together and are sorted by Township Code and Transformer Number.

     4.6 This Package is then delivered to the Vendor that was identified by the
         Customer as the Preferred Vendor.

     4.7 We have contract with our Vendors to assist the Customer with the loading of
         the Key change tokens to reconfigure the Customer meter. This is done by
         visiting the Customer’s meter.

     4.8 Once the meter is reconfigured the Customer is able to collect the FBE token.


a)   Who chooses customers?   Municipalities, in consultation with Eskom, identify
                              poor households to receive 50kWh on the following
                              system in line with a municipality’s indigent policy:

                                 (1) “Standard” Method or Technical Targeting

                                    All domestic grid installations (households)of
                                     2.5 A, 8A, 10A, and 20A on prepaid metering

                                    All domestic grid installations (households)
                                     consuming less than 150kWh in credit meters
                                     per month.


                              (2)“Multiple” Method or Municipal Indigent Policy

                                    Targeting poor households in line with the
                                     Indigent Policy adopted by the Council which
                                     takes local circumstances and affordability into

b)   Number of customers:     The Municipalities and Eskom to determine this in line
                              with criteria mentioned in a) above.

c)   Registration form :      All customers qualifying to the criteria above in a) will
                              need to complete the registration form on an annual

d)   System :                 Customers will collect their tokens

e)   Billing :                The Municipality will be billed according to tokens
                              issued by vendors and FBE supplied through
                              conventional meters after a proper reconciliation.
f)   Costs :              The above method will attract some costs, viz.
                          additional maintenance, communication, administration,
                          etc.(These non-energy cost will be ring-fenced and
                          recovered as agreed with the Government in line with
                          letters of assurance).





                       SENQU MUNICIPALITY

               (hereinafter referred to as “the Municipality”)


                        ESKOM HOLDINGS Ltd

                   (hereinafter referred to as “Eskom”)
The period of the Funding Agreement is hereby extended to:

30th June 2005

All conditions and provisions remain unchanged except for changes to the numbers
as determined by the Municipality and the recommended National Tariff which
could be amended by the National Electricity Regulator.

The Municipality

Address :                P O Box 18

                        Lady Grey


Telephone number:        051-6030019

Facsimile :                 051-6030445


Address :           Private Bag X 1

                    Beacon Bay


Telephone number : 043 – 7032588

Facsimile number : 043 – 7032412
Any notice or communication required or permitted to be given in terms of the
Agreement shall be valid and effective in writing.

SIGNED by the parties and witnessed on the following dates and at the following pleces

The Municipality :

DATE                   PLACE                     WITNESSES                SIGNATURE

                                                               For :The Municipality

16/06/2004           Lady Grey          ……………………...                    ………………

                                        1 ……………………

                                         2 ……………………

Eskom :

DATE                  PLACE                   WITNESSES               SIGNATURE
                                                                 For :    Eskom

31/05/2004        East London                 …………………..

                                             1 …………………


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