The electricity shortages in South Africa, which have resulted in continuous loadshedding, are severely affecting people and businesses and, consequently, the economy and employment, specialists from law firm Cliffe Dekker Hofmeyr (CDH) noted during a briefing on March 2.

They stressed that any directives issued by Ministers during the state of disaster – declared to find solutions to the energy crisis – must be necessary, rational and justified to meet legal requirements.

There was a 30% increase in liquidations during 2022 compared with 2021, and the loadshedding is not only affecting businesses of all sizes, but also consumers, who spend less in the face of high food and fuel prices, inflation and challenging economic circumstances, further negatively impacting on businesses, said CDH dispute resolution director Roxanne Webster.

"A reduced customer base negatively impacts on businesses' revenue, affects their sustainability and is exacerbated by the power challenges, and leads more businesses to consider liquidation, which reduces employment and therefore leads to a vicious circle," she said.

The impact liquidations have on the economy is severe because they also affect businesses' creditors and employees who are retrenched.

She detailed the benefits of business rescue processes and encouraged distressed companies to consider business rescue sooner, as this would mitigate some of the impact on creditors and employees and can lead to a better outcome and lesser impact on the economy.

"Energy has become a central part of any talks about the challenges the economy faces. While there was some positive news in the Budget speech with Finance Minister Enoch Godongwana providing incentives for businesses to produce their own energy to meet demand and improve their resilience, this presents other dangers," said advisory and consulting services firm PwC South Africa senior economist Xhanti Payi.

Many municipalities cannot do without the revenue generated by electricity sales, and many businesses that can self-generate power are typically the same ones that are paying revenue to the municipalities, he highlighted.

STATE OF DISASTER
Any directives, also called directions, that Ministers issue under the national state of disaster, in terms of the Disaster Management Act, must be considered only to the extent that they are necessary for the purpose of relief of the public, to protect property or to prevent or combat disruption, said CDH employment law director Fiona Leppan.

"Necessary directives published by a Minister must meet legality requirements and must be rational. There was a case before the courts during the Covid-19 lockdown period in which the directive that was issued to move the country to lockdown level 3 and reopen schools was challenged.

"The court found that the directive was rational and met the test of legality, as the measure was necessary, rational in the circumstances and justified. Therefore, before issuing a directive, a Minister will need to carefully identify and balance various interests and must assess the risks and how they may be managed," she noted.

The Disaster Management Act is an exceptional piece of legislation because it makes provisions for unforeseen circumstances that warrant extraordinary measures, said CDH dispute resolution director Vincent Mako.

However, the legislation should be used with caution because it does not require consultations nor Parliamentary oversight and limits freedoms and the rights of individuals because the Act was designed to enable the country to deal with disasters that were unforeseen, he highlighted.

Further, the Disaster Management Act states that directives should only be used if existing legislation or mechanisms are inadequate to provide the national executive with the means to deal with the disaster.

"It can be argued that the electricity crisis was not unforeseen and has been in the making for 16 years, and there are already two or three cases that are challenging the declaration of the national state of disaster," he said.

The national state of disaster regulations, published on February 27, also encourage cooperation between spheres of government.

"Was it necessary for a national state of disaster to be declared before there is cooperation between spheres of government? The Intergovernmental Relations Framework Act sets out how organs of State should collaborate, especially if it relates to infrastructure," Mako noted.

"Therefore, we get back to the question of whether it was necessary to declare a state of disaster when there are existing mechanisms and legislation to deal with the crisis," he added.

Additionally, the Public Finance Management Act and Treasury have already made provisions for emergency procurement.

"How to deal with emergency procurement is already present in statute and the question is whether we needed a national state of disaster to have regulations for emergency public procurement."

However, it is the details of the directives, which need to balance interests, that ministers issue that will be the most probable aspects that will be challenged, Mako said.