Run on Numbers: State litigators are lining up in droves
|Published
During the inaugural meeting of the Intergovernmental National Litigation Forum (INLF) on February 25, 2022, President Cyril Ramaphosa pointed out that legal fees for national and provincial spheres of the government over the past five financial years amounted to approximately R 7 billion. The INLF comprises the Heads of the State Attorneys Offices, Heads of Legal Services within the state departments and it is co-chaired by the Office of the Solicitor General and the Presidency.
He added that the Auditor General has reported that the contingent liability was sitting at R 147 billion for the 2020/2021 financial year. South Africa, needs to ensure that it has an effective state litigation service as a critical component of reducing leaks in the fiscus. This assessment may be substantially understated, as the report below will illustrate.
1. Prisma Contract Review Risk Management (Pty) Ltd, T/A Prisma CRRM recently made public research that they have conducted on power utility Eskom operations over the last 15 years. The research is fact-based, and the picture is clear, Eskom, a SOE, has overcharged consumers by close to R2 trillion.
The Eskom 2023 Annual Report stated that the Independent Power Producers (IPP), mostly solar and wind power producers, accounted for 27% of primary energy costs but produced only 8% of total electricity. And bear in mind, this is but, the beginning of the transition. The ratio will get steeper as more and more coal is replaced with expensive solar. Over six years, Director: Paul Nel of the research company, Prisma CRRM, energy cost of Independent Power Producers (IPPs) was 25.8% but produced only 5.8%. This is a very expensive price to lower CO2 emissions. For a developing country to continue down this path, it should only be considered, if the consumer does not have to pay the price. If he must pay, he should have the democratic right to put the question to him in a referendum with full disclosure of the costs and benefits.
2. Eskom’s electricity sales increases were much higher than Consumer Price Index (CPI) increases over the 15 years that ended March 31, 2023. Consumers were overcharged with R1.375 trillion in electricity tariffs – that is only the electricity increases above CPI. Eskom’s borrowings increased by R373.3 billion, and government equity (our tax money donated to Eskom) increased by R241.6 billion. In total, Eskom received R1,989 trillion above inflation in sales, additional debt, and equity over the 15 years, despite selling fewer units of electricity over the same period.
Eskom’s major clients are bound by legislation not to increase their revenue and operational expenditure by more than the Consumer Price Index (CPI). (Refer to the Uniform Financial Ratios and Norms, MFMA Circular No 71 in terms of Section 216(1)(c) of the Constitution and Section 2 of the Municipal Financial Management Act (MFMA)).
3. Fruit exporters say that they will be taking legal action against Transnet as the logistics crisis drags on. Hortgro, the fruit producer organisation, says exporters are likely to lose billions because of the delays and congestion at Cape Town port, and Transnet must be held accountable. Complaints received state that it is nothing strange to see more than a thousand trucks queueing for kilometres to unload goods at the Cape Town harbour.
Anton Rabe, Hortgro executive director stated that: “it is difficult to quantify the loss at this stage we just need to recover big season but we are looking at the vessel by vessel; “last year and the year before that and this is the 4th year that we are struggling with Transnet not sticking to their undertakings.
“The loss was around 2 1/2 billion Rand per annum for the last two seasons at least so you can just imagine what the impact of that is on the income of our growers because it comes from or goes off the row below the water line.
“We have seen some improvement and some management changes in the last week, and we welcome the commitment shown by the new management and operational staff but I'm afraid it's a little bit too little too late.
“We have got to look at some legal recourse on a vessel-by-vessel basis because it's fairly easy to quantify but even on the broader industry level we are looking at the possible project's action. It's complex. You need a long-term type of intervention, but we have no choice but to get somebody to help, which brings us to take action that's translated as the previous crisis drags on right.”
Earlier during the busiest time of the fruit export season, exporters complained about the new gate access system leading to congestion.
Earlier, during the busiest time of the fruit export season, exporters complained about the new gate access system leading to the congestion.
According to Dicky Webb, CEO of Le Grange Vervoer, a logistics company that transports fruit to Cape Town harbor, the Cape Town Port management does not seem to understand that fresh produce, especially fruit, is a sensitive product, the cold chain of which cannot be broken. He described the attitude of port staff as disinterested and unproductive. “I say this because if the port is windbound, then everyone stops working, even the cleaning lady drops her broom. The term windbound means vessels are prevented from sailing by a contrary or a high wind”.
Leading global shipping company, Maersk, said it would, from the first week of December, bypass Cape Town and offload cargo destined for South Africa in Mauritius to “improve reliability and transit time”.
4. In April 2021, the Road Accident Fund (RAF) resolved to switch the accounting standard applicable to the compilation of its annual financial statements since 2014 from the IFRS4 standard to the IPSAS 42 standard, which resulted in a difference of some R300 billion in its contingent liability position while its insolvency position improved from 3% to 54%.
The 2023/24 budget allocation for the National Department of Health shows a decline of R4.4 billion from R64.5 billion in 22/23 to R60.1 billion in 2023/24. The National Treasury acknowledges that the health sector is underfunded to a minimum of R11 billion. Medico-legal claims against the government health sector over and above the RAF are running away and are unacceptable. Incompetence from the admin to the medical procedures is to blame. September 27, 2023 – The Select Committee on Appropriations has received a briefing from the Office of the Auditor General of South Africa (AGSA) and the National Department of Health on medical-legal claims and their impact on provincial Healthcare care budgets AGSA said medico-legal claims are costing the health sector an accumulative R77 billion and the amount has, over the years risen significantly rather than the planned reduction. AGSA further said by March 31, 2022, 15 148 medico-legal claims were lodged against the Department of Health valued at R125 billion.
5. Another SOE entity that is facing numerous legal battles is the Land Bank which has allegedly resorted to desperate and illegal measures to call up loans from farmers to improve their balance sheet. It seems possible that their balance sheet and relevant documents submitted in court may contain inaccuracies regarding their entitlement to recoup outstanding loans. The question before the courts on which they must decide is: There are cases in which the Land Bank holds a bond over certain property, however, the contract between the farmer was signed with a third party (SLA holder). The legal position is the claim for repayment should come from that institution, not from Land Bank directly.
Regarding the largest claim against Eskom, a class action by consumers may not be practical as the government will just raise taxes in return and then we are back where we started. The next best thing would be not to have a government that wastes so much revenue in the first place.
President Cyril Ramaphosa said the INLF is a crucial step towards an efficient, coordinated state legal services system that promotes values and obligations arising from the Constitution, adding that the INLF has the potential to enhance the government’s ability to fulfil its policy. The president should consider the many citizens who do not have access to running water, children who walk many kilometres to school, the high crime rate, and people murdered on farms and townships with inadequate government protection.
Somewhere in the queue of litigants are the Sagarmatha’s, the Ayo’s, and several other companies that want their day in court, against the state.
* Kruger is an independent analyst.
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