FUNDING AGREEMENT FOR RENDERING FREE BASIC ELECTRICITY (hereinafter referred to as “the Agreement) BETWEEN Senqu Municipality (hereinafter referred to as “the Municipality”) AND Eskom Holdings Ltd (hereinafter referred to as “Eskom”) PREAMBLE: 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 4; “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. COMMENCEMENT AND DURATION OF AGREEMENT 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. SCOPE OF SERVICES 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” hereto. 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 FUNDING ARRANGEMENT 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 OBLGATIONS OF THE MUNICIPALITY 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 RESPONSIBILITIES AND RIGHTS OF ESKOM 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 municipality. 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 municipality. 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 following: 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 hereof. 8 ENTIRE AGREEMENT 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. 9 APPLICABLE LAW This agreement shall be interpreted in accordance with the laws of the Republic of South Africa. 10 AMENDMENT TO AGREEMENT 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. 11 WAIVER 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. 12 SEVERABILITY 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 CESSION 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 DISPUTE RESOLUTION 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 Africa. 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 BREACH OF CONTRACT 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 Agreement. 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 WTHHOLDING OF PAYMENTS 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 FORCE MAJEURE 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 impossible. 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 party. 18 DOMICULIUM CITANDI ET EXECUTANDI 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 9755 Telephone number : 051-6030019 Facsimile number : 051-6030445 Eskom Address : Private Bag x 1 Beacon Bay 5205 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 implementation. 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. ANNEXURE “A” IMPLEMENTATION PROCESS 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 technologies. All domestic grid installations (households) consuming less than 150kWh in credit meters per month. Or (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 account. 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 basis. 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). EXTENSION of FUNDING AGREEMENT FOR RENDERING FREE BASIC ELECTRICITY BETWEEN SENQU MUNICIPALITY (hereinafter referred to as “the Municipality”) AND 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 9755 Telephone number: 051-6030019 Facsimile : 051-6030445 Eskom Address : Private Bag X 1 Beacon Bay 5205 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 respectively. 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 ………………… 2………………….