Gamma-Grassridge: Compensation-Specialist Study - Eskom

Gamma-Grassridge:
Compensation-Specialist Study
by
Erwin Rode
assisted by
Nancy Graham
Rode & Associates CC
Tel. 021 946 2480
22 October 2007

Contents
1. Introduction 1
1.1 The visual effect of lines 1
1.2 Maintenance nuisance 1
1.3 Multiple lines 1
1.4 Public relations 1
2. Aim and objectives 2
3. Review of mainly North-American countries 2
3.1 Visual encumbrance 2
3.2 Urban, residential land 3
3.3 Agricultural land 4
3.4 Perceptions and fears of EMF health hazard 5
3.5 Technical alternatives 6
3.6 Compensation for first servitude 6
3.7 Compensation for additional rights in existing corridors 9
4. Review of European countries 10
4.1 Compensation 10
4.2 Utility corridors 10
5. Review of the South Africa legal situation 11
5.1 Acts governing expropriation by Eskom 11
5.2 Constructive expropriation 12
5.3 Servitudes are expropriations 12
5.4 How compensation is calculated 12
5.4.1 Compensation for a property with full rights 13
5.4.2 Compensation for the taking of a servitude 15
6. Project and operational claims 16
7. Renting versus lump-sum payment 17
8. How to quantify loss of business 19
9. Summary of conclusions 20
10. Recommendations 23
Reference list 27
Annexures 1, 2 & 3

1. Introduction:
1
The background to this study is an accumulation of compensation-related issues
that have started to affect the environment in which Eskom operates. Some of
these issues were highlighted to this author by Eskom officials during two separate
interviews at Megawatt Park on May 8 and September 28, 2007.
1.1 The visual effect of lines:
In the early 1990s, Eskom still paid one-third of the market value of the land for
the servitude area. Then eco tourism and game farming arrived, which meant
that visual impairment became a financial factor, and Eskom now pays 100% of
market value.
At present, the affected neighbour is not compensated for, for instance, visual
impairment.
1.2 Maintenance nuisance:
The presence of Eskom maintenance personnel will be an impediment as long as
the line exists (maintenance applies to both lines and roads). Examples are:
o Hunting has to be stopped temporarily.
o Entering of Eskom personnel results in expenditure on fuel and time lost when
the farmer or members of his staff has to investigate the presence of strangers
on the property.
o Eskom personnel “do not close gates”.
o Helicopter noise disturbs game.
1.3 Multiple lines:
A case can be made for paying more compensation should and when more than
one line is constructed on a servitude.
1.4 Public relations and “consumerism”:
Land owners are becoming more aware of their rights and have become less pliant
when negotiating servitudes. A contributing factor might be the higher percentage
of foreign land owners who have a stronger culture of “consumerism”.
But, in addition, Eskom has a serious PR problem because farmers tend to see it
as an agency of a hostile government.
As a result, in respect of the Venetia line at Louis Trichardt, farmers argue market
value is not acceptable as compensation in the light of their complaints. Also, in
respect of the Venetia line, a combative Transvaal Landbou-Unie (TLU) demands
R100 000 per km or R32 000 per ha, compared to the Eskom offer of R2 500 per
ha. Thus, it seems Eskom will have to talk to organised agriculture on a national
level.
There seems to be a perception that Eskom is reluctant to pay claims for damages,
which may have two root causes. Firstly, there is the possibility that there
is maladministration on the part of Eskom in the settling claims. Secondly, and
this is a fact, Eskom, as a matter of policy, only pays for claims when Eskom had
been negligent, e.g. fires caused by sparks, caused by poor maintenance. Thus,

2
if in this example, Eskom had actually done the maintenance just prior to the fire,
Eskom would refuse to entertain a damages claim. This legalistic stance by Eskom
might be the cause of much animosity.
The alienation of farmers is inevitably going to lead to delays in constructing infrastructure,
especially when farms have to be expropriated.
2. Aim and objectives
Thus, the aim of this study is to serve as an aid to Eskom Transmission’s management
in formulating a compensation policy and valuation approach with respect
to the proposed Gamma-Grassridge power lines. With this in mind, the specific
objectives are:
• To suggest methods of compensation when acquiring a servitude; and the
formulation of alternative proposals that could be applied, e.g. outright lumpsum
payout versus renting of a servitude. In doing so, consideration is to be
given to administrative aspects related to different compensation options.
• The consideration and analysis of compensation-calculation methods to cater
for loss of business due to the proposed transmission lines, viz. direct salescomparison
method vs. discounted cash flow.
• The consideration of compensation-calculation methods to deal with cumulative
transmission line servitudes.
• Ways to improve the compensation system in respect of project and operational
claims, e.g. fires from lightning strikes, animal deaths (being scared
and running into fences due to live-wire maintenance by helicopter, animal
losses when gates are left open).
3. Review of mainly North-American countries
The majority of studies on the impact of transmission lines on property values
have been conducted in the United States and Canada. This review of mostly
peer-reviewed literature looks at these international studies and attempts to relate
these geographic-specific studies to the proposed Eskom Gamma-Grassridge
765 kV transmission line. Most of the studies are concerned with the impact on
residential property values; however, the majority of land impacted in this project
is agricultural.
Power lines have widely dispersed benefits, but the negative impacts are concentrated
on those living near the line (Gregory & Von Winterfeldt, 1996). In general,
all the impact studies show that the presence of transmission lines negatively affect
property values. The most reliable studies use regression analysis and show
a reduction in mean house prices of between 2 and 10 percent. The impact,
however, differs according to distance from the line: properties within 15 metres
experience a loss of 6 to 9 percent, whereas those within 62 m lose 1 to 6 percent
of their value. The proximity of pylons has an even greater negative impact
(Sims & Dent, 2005).
3.1 Visual encumbrance
The most commonly cited impact of transmission lines of any voltage or height is
visual encumbrance. Colwell (1990) states that developers often increase the lot
size of a property adjacent to an easement 1 (servitude) to mitigate the negative
1
A type of servitude, the right to use of another’s land for a specific purpose. It can be for a specified
period or permanent.

3
impact. Many prior studies, however, do not hold lot size constant and, therefore,
some have found a positive impact on property values. Colwell (ibid), found that
negative value effects due to proximity to a line were experienced regardless of
whether a house was on an easement or not, which shows that it is not purely the
restrictions of the easement which impact the value of the property. This is of importance
because it is difficult for these property owners to claim compensation
from the utility company. Colwell (ibid) also states that the negative impact reduced
over time, which could be due to natural screening of lines by tree growth
or residents may have adapted to the sight.
There are conflicting results on the impact of pylons or towers on property values.
Colwell & Foley (1979) found that the presence of a tower on an easement did
not have a significant impact, while Hamilton & Schwann (1995) found that they
had a significant negative impact on adjacent properties. Des Rosiers (2002) analysed
the impact of visual encumbrance of power lines and pylons using 507
house sales in Greater Montreal between 1991 and 1996 in a multiple-regression
model. The conclusion reached was that the location and extent of the view of the
line or pylon were important in determining the value decline. The value of properties
adjacent to an easement and facing a pylon declined by 9,6% on average;
however, those properties along the easement one or two lots away from a pylon
had increased values of between 7,4% and 9,2% because these properties had
greater visual clearance, privacy and recreational use of the easement. Those
properties not adjacent to the line but within 50 to 150m had values decline by
5,3% because they had the visual encumbrance but no proximity advantages.
Luxury houses suffered greater decline in value than lower-end houses (Fourie et
al., 2003; Des Rosiers, 2002).
In order to decrease visual impacts, United States utility companies have landscaped
the easement, painted pylons green and introduced new, less intrusive
tower designs. According Priestly & Evans (1996) less than 50% of residents felt
these measures made a difference to the visual impact and it was suggested that
the local community be consulted as to the colours, landscaping and designs used
in order to best decrease visual encumbrance.
Eskom plans to reduce visual encumbrance in the Gamma-Grassridge corridor by
aligning lines “at the base of mountains, plateaus and ridges … [and using] existing
passages through mountains”. Also, if the second proposed line is eventually
required, it can be constructed parallel to the first line (ACER, 2006: 109).
Visual encumbrance is typically a major factor in urban, residential transmission
lines, but increasingly it could be expected to become a factor affecting values of
rural properties, and businesses on such properties, in the light of the growing
incidence of eco tourism.
3.2 Urban, residential land
Most international studies look at the impact of transmission lines on residential
property values. Some studies have found no significant effect on property values
but, as mentioned previously, in general, methodologically robust studies find a
value decline of between 2% and 10% and property values increase with greater
distance from the line (Kroll & Priestly, 1992; Sims & Dent, 2005; Colwell &
Foley, 1979). Different geographic locations and methodologies make it difficult
to compare study results. Properties in New Zealand, like those in the United
Kingdom, can be built directly beneath a power line, unlike in the United States
and Canada. A New Zealand residential study found a 10% decline in values, and
UK valuers and estate agents estimated the negative impact from transmission
lines to be between 5% and 10%. In the UK, property developers have begun to

4
place low-cost and social housing closest to lines (Haider & Haroun, 2000; Sims &
Dent, 2005). This contrasts with Toronto, Canada, where those areas with transmission
lines are not run-down or low-income but are often desirable because
transmission lines are placed near transportation networks (Haider & Haroun,
2000).
Appraisers (valuers) from 47 US states participated in a survey on whether high
voltage lines affect residential property values, and the response showed that
84% believed it did and the mean estimated decline in value was 10%. New England
had a higher estimated value decline, which is probably due to greater
awareness of the environmental issues surrounding such lines, and the higher
population density means more properties would be affected by power lines (Delaney
& Timmons, 1992).
The issues raised by residents in residential neighbourhoods next to transmission
lines are the visual encumbrance, safety concern, noise and fear of possible
health hazards from electromagnetic field (EMF) exposure, the latter which will be
discussed in detail further (Delaney & Timmons, 1992). Houses in residential areas
are far closer to transmission lines than those on agricultural land, therefore
the effect of transmission lines on agricultural property values is expected to differ.
3.3 Agricultural land
Boyer et al’s study on 1000 agricultural property sales in Canada from 1966-77 is
still the definitive analysis of the effect of transmission lines on agricultural land
values. Boyer et al looked at the difference between the ‘per-acre value’ means of
sales near a transmission line and the mean values in a control area. Per-acre
values near the line were 16-29% lower than those in the control area and properties
with less than 10 acres had almost twice the percentage loss as those
properties with more than 50 acres (Kroll & Priestly, 1992; Gregory & von Winterfeldt,
1996).
Appraiser studies show that agricultural land values experience a greater negative
effect due to power lines than residential land, but the effect depends on the degree
of disruption to farming activities and irrigation. Most studies showed that
agricultural landowners objected more to the inconvenience of the line rather
than the effect on property values (Kroll & Priestly, 1992).
According to the Public Service Commission of Wisconsin report (2004), the impact
on agricultural land depends on the line design and type of farming. A
transmission line could affect the operation and movement of field machinery and
irrigation equipment, fieldwork patterns may need to be altered, soils are compacted,
wind breaks may be removed, and weed encroachment is harder to control
beneath the lines. According to the Environmental Impact Statement for the
Schultz-Hanford power line project, most crops can still be grown and livestock
can graze. The height of trees and crops in the servitude are, however, controlled
to prevent a fire hazard (Bonneville Power Authority, 2003a).
Access roads often need to be constructed by the utility company for the construction
and maintenance of the line once in operation. Landowners in the
Gamma-Grassridge corridor have security concerns related to access roads and
fencing because of the possibility of poachers, stock theft and damage to crops
and infrastructure and this may need to be compensated for; however, there is
no precedent in the international literature. Another novel concern is that helicopters
flying over the land to do aerial maintenance of the lines make animals skit-

5
tish and they can injure or kill themselves by running into fences as a result
(ACER, 2006).
Agricultural landowners are also concerned with the impact if EMF exposure on
their animals and crops. Studies on the continuous exposure of grazing animals to
EMF show that the reproductive functions and pregnancy of cows are not affected,
and cows and sheep are never underneath the lines for long periods.
Sheep and cattle exposure to EMF also does not affect their levels of the hormone
melatonin, which is important for seasonal breeders. Plant responses such as
germination, seedling emergence growth and production, and flowering are also
not affected (E x ponent & T. Dan Bracken, Inc, 2001). Eskom commissioned an
EMF study which reviews all the major studies on EMF exposure on humans, animals
and plants (Pretorius, 2006).
The only possible impact on cattle is that stray voltage — known as neutral-toearth
voltage, and which is often unnoticed by humans — is felt by cattle. It affects
their behaviour and can lead to increased milking time and sometimes decreased
milk production. A cow may receive an electric shock when it makes contact
with a water trough, and this results in hesitation in approaching troughs,
nervousness at milking, and increased defecation and urination during the process.
This effect can be mitigated by using additional grounding where there is one
or more milliamps of stray voltage (Public Service Commission of Wisconsin,
2004; American Transmission Company, 2005).
3.4 Perceptions and fears of EMF health hazard
The impact of EMF exposure on humans is of greater concern to the general public.
The strength of the electric fields produced by 765 kV lines is 3 kV/m and the
maximum level determined by the International Radiation Protection Association
is 5 kV/m. Vegetation and buildings significantly reduce the strength of electric,
but not magnetic, fields (Fourie et al, 2003). “In 2001, the International Agency
for Research on Cancer classified power frequency EMFs as a ‘possible’ human
carcinogen on the basis of childhood leukaemia studies” (Von Winterfeldt et al.,
2004: 1501). Two of these studies were Swedish, published in 1992, and increased
public awareness in the United States of the possible health hazard (Gallimore
& Jayne, 1999). Many other studies have shown no effect due to EMF exposure
and the question of whether EMF exposure results in increased cancer risk
is widely debated in the literature, and thus far the evidence is inconclusive.
What is of concern for the impact of transmission lines on property values is,
however, not whether there is scientific evidence of an adverse health impact but
rather the impact of the negative perceptions and public fears on property values.
Property values are a mental concept and depend on people’s attitudes and
perceptions. The problem with a hazard such as EMF exposure is that it is “novel,
unseen, difficult to control through individual action, delayed in its effects [and]
perceived to increase cancer frequency” (Gallimore & Jayne, 1999: 247). Therefore,
the increased public concern and stigmatization associated with EMF transmission
lines in recent decades impact property values. A landmark case (Criscuola
vs. Power Authority of State of New York, 1993) ruled that whether the EMF
danger is a fact is irrelevant to the issue of the market value impact. A claimant is
no longer expected to give scientific evidence of the health impact but rather evidence
of a prevalent public perception of so-called ‘cancerphobia’. This fear is not
required to be reasonable (Rikon, 1996; Jaconetty, 2001; Gallimore & Jayne,
1999). This marketplace-fear theory is not endorsed by the United States Supreme
Court and Seventh Circuit Court of Appeals, who call it ‘junk science’, and
California will not apply this principle in inverse condemnation cases, where damages
are being claimed where a power line was in existence prior to an owner ac-

6
quiring the property. In general, US courts “are becoming more flexible and admitting
testimony of subjective fear in the marketplace” (Jaconetty, 2001:27). In
the US, evidence of marketplace fear is well established, but the question is to
what extent is such a public fear prevalent in South Africa, and therefore, likely to
affect property values (Rikon, 1996).
According to a study by Gallimore & Jayne (1999), those living further from the
line saw the health risk as greater than those who lived next to it. This may be
because, according to Priestly & Evans (1995), those residents who use the rightof-way
for recreation purposes perceive lower health and safety risks; and perhaps
those living near a line are more likely to use this land. Those with greater
negative perceptions of transmission lines were generally older, had higher occupational
status and had lived in the area prior to the construction of the line. This
study showed that an individual’s characteristics and relationship to the line determines
their perceptions and, therefore, while a current property owner may
not believe the EMF health risk, buyers’ decisions are influenced by the perceptions
of future buyers and resale value (Priestly & Evans, 1995; Gallimore &
Jayne, 1999).
3.5 Technical alternatives
Some of the literature discusses the possibility of placing transmission lines underground,
as this is shown to dramatically increase affected property values
(Von Winterfeldt et al., 2004). This can be done for lower voltage lines, but lines
higher than 132 kV are prohibitively costly to bury and heavy insulation and large
servitudes are required (Elliot & Wadley, 2004). In the case of a 765 kV underground
line, a servitude as wide as a 10-lane highway may be required and these
areas cannot be used for farming activities once construction is completed. If the
proposed second Gamma-Grassridge 765 kV line is required in the future, it could
be constructed parallel to the original line; however, this will require a larger servitude
in both cases and visual impacts will be greater in the latter (ACER, 2006).
A moderate-cost retrofitting alternative is re-phasing or split phasing transmission
lines. Split phasing involves two or more conductors per phase, which increase
power transfer capability, and if the geometry of the design makes the centroids
of each phase concentric, the magnetic fields are reduced (Von Winterfeldt et al,
2004; Woolery & Ferguson, 1996).
3.6 Compensation for first servitude
The abbreviated definition of market value is “the price at which a willing seller
would sell and a willing buyer would buy” at usual market conditions (American
Institute of Real Estate Appraisers cited in Gregory & Von Winterfeldt, 1996:
203). In the case of utility companies acquiring a servitude, there is no equality
between buyer and seller. There is no exchange of property, but rather an estimation
of loss; and there is a difference between what people would be prepared
to pay to obtain a good and what they would require to be willing to accept its
loss or damage (Gregory & von Winterfeldt, 1996). In the United States, and
most countries worldwide, including South Africa, utility companies have powers
of eminent domain 2 whereby, subject to the Public Utility Commission’s approval,
they can take (expropriate) private property for public use, provided ‘just compensation’
is paid. In the United States, these powers are not often used, as negotiations
are usually successful. However, the fact that utilities have such powers
can skew good-faith negotiations (Hutchinson & Rowan-Robinson, 2002; The
Pennsylvania Code, 2007; Landowners Association of Wyoming, ND). The conditions
surrounding the acquisition of the servitude are also not ‘usual market con-
2 The power to take private property for public use with just compensation (expropriation).

7
ditions’ because the landowners do not have a say in which portion of their land
they sell or lease and when this construction will occur (Gregory & Von Winterfeldt,
1996). However, in South Africa, landowners do have a say in the alignment
of the servitude and therefore, where towers will be constructed.
In many states in the United States, courts will allow compensation for impairment
of the view from a property, but not for the loss of visibility of the property.
According to Colwell (1990), negative value effects due to visual encumbrance
are also experienced by those without transmission lines and pylons on
their property; however, not many courts allow view impairment compensation
for such properties.
As stated previously, United States courts are becoming more flexible in recent
years in awarding compensation for marketplace fear of EMF exposure. However,
the Eskom Scoping Report does not address the issue of compensation due to
marketplace fear in South Africa (ACER, 2006). As stated above, even if potential
buyers do not have negative perceptions of transmission lines themselves, they
are concerned with the resale value of their properties and this, therefore, needs
to be accounted for in compensation (Rikon, 1996; Gallimore & Jayne, 1999). The
issue of circularity in the determination of property values must also be taken into
account because, for instance, in the United Kingdom, valuers were issued guidelines
to take into consideration that public fears may affect the marketability and
future value of properties. This could, of course, lead to valuers decreasing property
values, which in turn increases the public’s fear that transmission lines, in
particular EMF exposure, affect property values (Gallimore & Jayne, 1999).
The evidence for the health impact of EMF exposure due to transmission lines is
inconclusive; however, utility companies may consider paying more to increase
the width of servitudes in case their liability is increased due to future conclusive
scientific evidence. This measure could remove or reduce the magnitude of possible
future liabilities (Bryant & Epley, 1998). Utilities could also further investigate
the source of the transmission line stigma to better educate the public, thereby
possibly altering their negative perceptions (Elliot & Wadley, 2002).
Thompson & Suntum (2006) discuss two valuation approaches that are similar to
those in South Africa:
(a) Paying the fair market value of the portion taken and severance damages for
the remainder, or
(b) Using the ‘before and after’ rule whereby the compensation paid is the difference
between the fair market value of the whole parcel before, and the value
of the remainder after, the purchase.
In determining before and after values for ‘just compensation’, the matched-pairs
sales analysis seems to be the most robust method as this measures people’s actual
behaviour as opposed to their perceptions, which often differ. Data on similar
sales along a transmission line corridor before and after the construction of the
line should be compared. However, where such data is unavailable, actual market
sales of comparable unaffected properties (which are adjusted according to location,
physical characteristics and time and terms of sale) are compared with sales
data of properties next to a transmission line (Bryant & Epley, 1998; Rikon,
1996; Gregory & Von Winterfeldt, 1996).
The matched-pairs sales method is far easier to use to determine compensation
within an urban, residential setting because similar sales along the corridor are
more numerous and occur more often. Agricultural sales data are much less
common, which could explain why such little research has been done on the im-

8
pact of transmission lines on agricultural land values. In the case of poor market
evidence to calculate the fair market value before and after, the discounted
cash flow approach can be used, whereby all future income and expenditure
are discounted back to the present day at an appropriate discount rate. However,
this method is highly sensitive to changes in key variables, so comparable sales
should be used where available (Hutchinson & Rowan-Robinson, 2001). Agricultural
land also differs so greatly because there are many types of agricultural
use, different qualities of land and also the availability of resources differ for
each parcel (Kroll & Priestly, 1992).
In the United Kingdom, most power lines over agricultural land are constructed
according to wayleave 3 agreements rather than easements. A wayleave is an
agreement for right of use of land and can be terminated after the period of lease
expires; the landowner can give notice of termination or, if the property is sold,
the agreement is not binding on the successor. The wayleave and easement
payment in the UK is calculated per tower and per kilometre of overhead lines
across the property, and the rates are based on the underlying rental value (National
Association of Real Estate Appraisers, 1999; National Grid, 2006; Hutchinson
& Rowan-Robinson, 2001).
In the UK, enhanced compensation of 150% of the arable rate is paid where the
movement of machinery in commercial orchards and hop gardens is hampered by
the presence of towers (Valuation Office Agency, 2000). The redesign of irrigation
systems also needs to be compensated for if the placement of the line interferes
with these. The compensation damages also need to include both the loss
of land within the servitude and, where a portion of land is severed and can no
longer be utilised, the loss of land outside the servitude (Bonneville Power Authority,
2003b; Thompson & Suntum, 2006).
The smaller farms in the southern section of the proposed Eskom corridor, from
Kleinpoort to the Grassridge substation outside the Nelson Mandela Bay metropolis,
are more likely to have portions severed by transmission lines than those larger
farms in the northern section of the Karoo (ACER, 2006).
Where the transmission line is permanent and deforestation of the corridor is
required, this land becomes sterile and the land value is reduced sharply. Therefore,
its value reduction and its future potential income loss need to be compensated
for. For arable land, only the land displaced by the apparatus and that
which is severed and of no use is sterilised (Hutchinson & Rowan-Robinson,
2001).
Eskom’s policy is that trees and crops higher than 4 m as well as dwellings are
not allowed within the servitude. Most agriculture in the Gamma-Grassridge corridor
is citrus, livestock and game farming and most of the terrain is sparsely
vegetated. A landowner would suffer considerable loss if the line crosses citrus
orchards and must be duly compensated (Bonneville Power Authority, 2003b;
ACER, 2006). Disturbance and damages to land or movables during construction
and subsequent maintenance are also subject to compensation (Hutchinson
& Rowan-Robinson, 2001).
There is easy access from existing roads for most of the proposed corridor for the
Gamma-Grassridge line project. Where roads do need to be constructed, they
will be aligned and constructed according to the landowner’s specifications so that
the road may serve both Eskom and the landowner. In the Schultz-Hanford
3 A wayleave is an agreement between the utility company and owner/occupier which gives the utility
the right to “install, maintain, adjust, repair, alter, keep and enter to inspect apparatus on, under or
over their property” (Openreach, 2006)

9
transmission line project, if the landowner has equal benefit from the new access
road, only 50% of the full compensation fee is paid (Bonneville Power Authority,
2003b).
3.7 Compensation for additional rights in existing corridors
In the USA, a new industry requiring the use of right-of-way corridors for communication
lines and fibre-optic cables emerged during the closing years of the
20 th century. These communication lines are responsible for transmitting data involving
national security, banking, the Worldwide Web, teleconferencing and most
types of data transmission (Bolton & Sick, 1999). This created a market for additional
property rights within existing right-of-way corridors, and, of
course, the need to value these rights. As a consequence of the robust demand
for these new rights-of-way, a multitude of sales and leases were concluded. One
might expect that appraisers (valuers) would look upon these as comparables for
valuation purposes.
In this respect, Bolton & Sick (1999) discuss the differences between the valuation
approach taken by the condemnors (utility companies) and the landowners.
In the evaluation of a taking of additional property rights within an existing corridor,
the former typically values the property using the pro rata share of the
easement (servitude) value using ‘across the fence’ (ATF) values 4 . The authors
correctly point out that this methodology does not conform to appraisal practices
because in an existing corridor the ‘highest and best use’ (see below) “cannot be
anything other than for those kind of uses that are already found within the corridor”.
Furthermore, in Texas, amounts paid by utilities with eminent domain (power of
expropriation) are legally inadmissible as comparable evidence to determine
compensation. The obvious reason for this is that such transactions are not arms
length, given the threat of coercion (expropriation).
The proper valuation methodology should be that of the value based on the ‘highest
and best use’, which is defined as “the reasonably probable and legal use of
vacant land or an improved property, which is physically possible, appropriately
supported, financially feasible and that results in the highest value”. The highest
and best use is usually the same as the current land use of the corridor, which in
most cases will be much higher than ATF values (Bolton & Sick, 1999).
Thus, if the land required by the utility also had potential for consolidation of
fields or for sub-division for residential development, the just compensation
will reflect this highest and best use (Public Service Commission of Wisconsin,
2004; Fourie et al, 2003). This potentiality principal also applies to South Africa
(Gildenhuys, 2001: 301).
It is inevitable that this American trend to create additional rights within existing
corridors will soon reach South African shores. For instance, MTN announced in
September 2007 that it intends spending R1,3 billion over the next two years on
an optic-fibre network, covering 5 000 km (Sake24, Die Burger). The question is:
where does MTN intend laying these cables if not in existing corridors?
4 ‘At (or across) the fence’ value is the value of land adjacent to a transmission line. The premise is
that “the corridor land should be worth at least as much as the land through which it passes”. (Lusvardi
& Warren, 2001)

10
By creating a corridor that would allow for additional rights in the future, Eskom
can potentially add more value to its corridors than it might have expected until
now. Eskom will be well advised to keep this in mind when negotiating new corridors
with owners. In the USA, telecommunication companies had rented old dormant
railway rights of way from the railways, without compensation to the owners
over whose land these corridors run, and this resulted in long drawn-out class
action suits against these communication companies (Lusvardi & Warren, 2001).
4. Review of European countries
Various entities in the USA commissioned a study of right-of-way practises in
Europe (US Department of Transportation, 2002). The focus of the study was on
highways, and it covered the following countries: Norway, Germany, the Netherlands
and England. The study is valuable for our purposes because of its comprehensiveness
as well as the alternative view. In this chapter, we summarise the
study’s findings as they pertain to our study.
The countries that the study team visited have an underlying philosophy of sensitivity
to the needs of property owners.
Practises used in these countries encourage property-owner involvement before
completion of final right-of-way plans and they use an extensive property-owner
interview process. Also, they make a conscientious effort to limit the number of
people contacting the property owner. Thus, one person would be assigned to do
the valuation, the acquisition negotiations and manage relocation services.
4.1 Compensation
In many cases, compensation includes provisions for payment for land acquired,
damages to remaining property, and relocation reimbursements. The impact on
properties outside the project limits is also considered.
The countries all provide liberal payments to businesses affected by property
acquisition, project construction or highway operations. These payments range
from the liquidation and acquisition of businesses to the negotiated reimbursement
of moving and relocation costs and incidental expenses incurred by displaced
businesses.
Each country has a method for facilitating early possession or acquisition.
These methods include mediation, advance payment and advance right-of-entry.
Several countries use geographic information system (GIS) technology to track
land uses, including right-of-way.
4.2 Utility corridors
As a result of their observations, the American study team recommended that
State Departments of Transportation (DOTs) consider developing utility corridors,
including placing conduits for future use and using joint trenching techniques, as
well as requiring utility companies to coordinate installation of facilities within
these corridors. The team also recommended that State DOTs should encourage
the use of pipelines as a transportation mode.
The implication of these trends, read together with the rise in the need for optic-
fibre corridors in the USA, is that Eskom should assume that other utilities will

11
want to share its high-voltage corridors. This has important legal and financial
implications. In the USA, communication companies that had rented old unused
railway servitudes without the consent of the owners eventually had to face protracted
class actions.
5. Review of the South Africa legal situation:
In this chapter, we extensively cite Dr Antonie Gildenhuys. His book titled Eiendomsreg
(2 nd edition, 2001) is the standard work in South Africa, and is not
available in English. This author went to great trouble to find the correct translation
for the Afrikaans terminology but nevertheless included the original Afrikaans
for a few key terms.
The word ‘expropriation’ means ‘deprivation of property’ (ontneming van eiendom),
and in expropriation legislation it normally has a wide meaning, including
the creation of a new right over property (goed), like a servitude in favour of the
expropriator or other legal entity (Gildenhuys: 61). S 25 of the 1996 Constitution
states ‘property is not limited to land’ (Southwood: 15).
The expropriator may expropriate as much land as he may need, but he may not
expropriate more than what the enabling law allows. Land does not need to be a
cadastral unit in order to be expropriated (Gildenhuys, 65).
The expropriator does not need to take the full bundle of property rights of the
expropriated land. Specific rights, like a right of way or mineral rights, may remain
for the owner or third party. But the expropriator may expropriate these
remaining rights at a later stage. Where the expropriator takes less than the full
bundle of property rights, the expropriated person is entitled to register as a servitude
in his favour the rights retained by him (67).
5.1 Acts governing expropriation by Eskom
The expropriator may derive his authority to expropriate from the provisions of
the Expropriation Act of 1975 or from the provisions of another enabling act.
Eskom is enabled to expropriate land, or a right in land, in terms of ss 27(1) of
the Electricity Regulation Act, no 4 of 2006. The Minister may, in terms of ss
27(2), prescribe the procedure to be followed in giving effect to ss 27(1). Importantly,
ss 27(3) states:
“The State may exercise the powers contemplated in subsection (1) only if —
(a) a licensee is unable to acquire land or a right in, over or in respect of such
land by agreement with the owner, and
(b) the land or any right in, over or in respect of such land is reasonably required
by a licensee for facilities which will enhance the electricity infrastructure
in the national interest.” (Government Gazette no 28992: 5 July
2006)
Section 26(1) of the Expropriation Act of 1975 provides that, should any authority
to expropriate be exercised in terms of another act, the compensation due should
be determined and paid, mutatis mutandis, in terms of the provisions of the Expropriation
Act of 1975. This provision was only inserted in the 1992 amendment
of the Expropriation Act of 1975. Thus, in 1992 South Africa had uniform norms
for compensation procedures and the calculation of compensation (134). However,
legislation that was promulgated after 1992 will take precedence over
s 26(1) (51-2).

12
The Electricity Regulation Act (referred to above) was promulgated in 2006, but
at the time of writing, the Minister had not exercised his powers in terms of
ss 27(2). Thus, at this time, the procedures to be followed would be in terms of
the Expropriation Act of 1975.
In interpreting these acts, cognisance should also be taken of the 1996 Constitution,
more specifically section 25 that deals with property deprivation (see Annexure
1).
5.2 Constructive expropriation
A deprivation (ontneming) that is not executed by means of a formal expropriation
action is sometimes called constructive expropriation, a de facto expropriation,
a quasi expropriation, or an effective expropriation. Examples are control
measures (beheermaatreëls) like land-use planning and development controls,
building regulation and environmental conservation laws (137; 22-7).
5.3 Servitudes are expropriations
When a public body creates a new servitude for itself over private property, it
constitutes an expropriation of ‘property’ in terms of the Constitution (142). The
Constitution prescribes that, in order for deprivation (ontneming) to be expropriation
and, therefore, legal it:
o needs to be executed by due process (algemeen geldende regsvoorskrif)
o may not be arbitrary
o should serve the public or be in the public interest (142)
Some legislation in South Africa authorises public bodies, especially municipalities,
to lay pipelines over private property. By laying the pipe, the public body effectively
gets a servitude over the property concerned. This is in effect expropriation,
and compensation is payable (348-9).
Gildenhuys cites Judge Baker in Abdullah v City Council of Cape Town:
The general rule of the common law is that for any deprivation of property (land,
buildings or any other kind of property) by a local authority, compensation is to be
paid to the owner, unless the enabling legislation expressly or by necessary implication
takes away the common law right to compensation. (1976 (2) SA 370 (C))
Gildenhuys then comments: “This finding was set aside on appeal, but in the current
constitutional dispensation the verdict of Judge Baker … may prove to be
correct.” (148)
5.4 How compensation is calculated
A property’s value is derived from a bundle of rights, and the expropriation involves
the deprivation of the rights rather than the physical property. Thus, if a
property with an existing servitude is expropriated, its value is less than a property
unencumbered by a servitude. The compensation payable should be equal to
the value of these rights in the open market, and the owner’s subjective interest
in these rights is irrelevant in determining the compensation (153). Where there
is no open market for these rights, the alternative valuation method might be replacement
costs less depreciation (156).

13
In South Africa, the courts have always accepted that the unwillingness of the
owner to part with his property should play no role in the determination of the
compensation amount. Neither should the sentimental value the owner attaches
to his property influence the market value (246).
The Expropriation Act of 1975 prescribes that compensation should not be more
than the market value of the property, plus an amount to cover further actual
financial loss (155; 165; 167). Also, the overriding compensation principle enshrined
in the Constitution is one of justness and equity, “reflecting an equitable
balance between the public interest and the interests of those affected” (165).
Where a right is expropriated (excluding a registered right to minerals), the compensation
norm is the financial loss suffered (ss 12(b) of the Expropriation Act of
1975). Where the relevant right has a market value, the compensation could,
thus, be market value.
As stated earlier, claims for damage that may result from possible (future)
unlawful acts of the employees or agents of the expropriator during their activities
on the expropriated land cannot be included in the compensation fee. Should
such damage be caused, the owner could claim damages for the delict (318).
In terms of a clause in the Expropriation Act of 1975, the fact that the expropriated
land has a special value for the expropriator (e.g. as an airport) cannot influence
the determination of market value if it is unlikely that the expropriated
land would be sold for that purpose (246).
In South Africa, tax claims are not considered in computing the compensation
amount (333).
5.4.1 Compensation for a property with full rights
Compensation for taking a property with full rights is made up of two main
categories (heads of claim), and should not exceed (see Annexure 2):
o The market value of the expropriated property
o Further actual financial loss suffered by the owner.
In addition, a solatium might also be payable in terms of s 12(2) of the Expropriation
Act of 1975 (165; Annexure 2).
The head for further actual financial loss can be broken down into:
o Value derogation to the remainder through severance (afskeiding)
o Disturbance (ontwrigting)
o Injurious affection (nadelige aantasting) (155)
According to Gildenhuys (324), there is no limit to the various items that could be
claimed under further actual financial loss. “Financial loss” is defined as “loss of
money or decrease in financial value” by WordNet, the online lexical database
of English developed at Princeton University. This implies it could include capital
loss.

Severance loss
14
Severance loss occurs when the value of the remaining (unexpropriated) portion
is reduced because, for instance, its physical characteristics (like its extent) now
make it less viable or even worthless.
Where land is severed, it is important to avoid double counting in calculating the
financial loss or value diminution inflicted on the remaining portion (338). The
‘before and after’ approach (stated previously) implicitly already contains the financial
loss through severance.
In order to be valid, a severance claim should be:
(a) a claim for a financial loss
(b) caused by the taking of the expropriated portion, and
(c) related to land value.
No damages claim is payable if it is “remote, speculative, contingent, conjectural,
peculiar to the land owner, or strictly an inconvenience” (340).
Disturbance losses
Gildenhuys cites David Hawkins, who compiled a list of “disturbance claims” in
England, examples of which are: costs of moving stock and machinery; telephone
removals; loss of goodwill; and temporary loss of profit of the business (324).
Injurious affection
This term describes further financial loss inflicted on the remainder through the
intended use by the expropriator of the expropriated portion.
A layman’s term for this might be ‘collateral damage’.
An example is the construction of a sewage plant on the expropriated portion, the
odours of which might affect the value of the remainder. In the recent past (albeit
before the 1993 and 1996 Constitutions), the South African courts followed a
narrow approach in that damages owing to the intended use of the expropriated
portion were not allowed. These verdicts are in conflict with the thinking behind
ss 12(5)(f) and (h)(ii) of the Expropriation Act of 1975, which do allow for compensation
under certain circumstances. However, in the case of servitudes, the
court did take cognisance of the probable impact the servitude would have on the
servient tenement (342-3).
Gildenhuys proposes that in the event of value impairment of the remaining portion
of a claimant’s property caused by the intended use by the expropriator of
the expropriated portion, the owner be compensated for this value derogation
(343). In this author’s view, this might include visual impairment.
Under the new constitutional regime, Gildenhuys looks upon such a step as a
practical way to satisfy the Constitution’s provision (ss 25(3)(e)) that, in determining
the compensation amount, cognisance should be taken of the “purpose of
the expropriation” (342-3; 353-4). Hence he proposes that the legislator should
consider this option, pointing out that in many other jurisdictions these damages
are claimable (346). See also §4: Review of European countries.
In terms of s 2(2) of the Expropriation Act of 1975, the expropriator may under
these circumstances expropriate the remainder but he is not forced to do so (74).

15
Citing Canadian, English and Dutch sources, Gildenhuys states no claim for damages
caused by intended works that are not on the expropriated portion will be
entertained (344).
Solatium
A solatium is the component of compensation that relates to non-financial loss,
e.g. inconvenience, nuisance, remorse and suffering (186).
In terms of the Expropriation Act of 1975, it is incumbent on the expropriator to
pay a percentage allowance as a solatium, although the final amount is subject to
a ceiling (188; Annexure 2). If the enabling act — the act in terms of which the
compensation is calculated — does not contain compensation norms, the court
has the power to award a solatium for non-financial loss. Where such an enabling
act does contain compensation norms, it is a question of legal interpretation
whether solatium should be paid. Given the Constitutional provision of justness
and equity, Gildenhuys is of the opinion that the payment of a solatium may in
such cases be obligatory (190).
5.4.2 Compensation for the taking of a servitude
Compensation for financial loss is subjectively determined based on the personal
circumstances of the expropriated person. In contrast, the market value of
the expropriated property is determined objectively, without reference to the
personal circumstances of the expropriated person (319).
In terms of s 12(b) of the Expropriation Act of 1975, the compensation may, in
the case of a right (excluding a registered right to minerals), not exceed the financial
loss suffered through the taking (see Annexure 2).
An expropriator can through expropriation create a new servitude or right over
land for him (70). This happens when the expropriator does not need the full use
of the land for his works, but is satisfied with the lesser rights he will enjoy under
the servitude. Examples are water pipelines and power lines. The compensation
for such a servitude equals the financial loss suffered by the owner. In evaluating
the value diminution, cognisance should be taken of the nature, extent and expected
duration of the servitude. In the case of a road servitude, the courts will
normally award the full market value of the affected land because there is no expectation
that the land will ever again be used for anything but a road (348).
As for power-line servitudes, the following factors should be considered in evaluating
the compensation (349):
o Extent of the land taken
o The remaining use the owner has over the land taken: Should the owner not
be able to use the affected land at all, the compensation might be equal to
the full market value.
o The duration of the servitude
o The value diminution on the whole property as a result of the unsightliness of
the power lines and towers
o Loss of privacy
o The nuisance when maintenance personnel enter the property.
Claims for damage that may result from possible (future) unlawful acts of the
employees or agents of the expropriator during their activities on the expropriated
land cannot be included in the compensation fee. Should such damage be
caused, the owner could claim damages for the delict or get an interdict (318).

16
From the above, it is not clear to this author what the legislator had in mind when
it prescribed different approaches to compensation for the expropriation of properties
with full rights as distinct from the taking of servitudes (taking of limited
rights) (cf. ss 12(a) and (b) of the Expropriation Act of 1975). In practise, the two
approaches should yield the same compensation amount (assuming the same
rights are expropriated), but the full-rights approach has the advantage that it
concentrates the mind on the important value-detracting attributes. Nevertheless,
the list of value-detracting attributes for servitudes enunciated by Gildenhuys
above under §5.4.2 is very helpful.
Note too that s 12 puts a maximum value on the compensation. Overcompensation
is not allowed.
Roads:
In terms of most provincial ordinances, the declaration of a road establishes a
road servitude over the land concerned — and involves no land transfer. Nevertheless,
the compensation is calculated as if the land in question is expropriated
(Gildenhuys, 2001:135).
6. Project and operational claims
Claims at Eskom are handled by Eskom Insurance Management Services at
Megawatt Park. This author had an interview with Ms Beverley Jemain-Cain
(Claims Manager) and Mr Krishan Chaithoo (Technical and Administration Manager:
Insurance) on September 28, 2007.
Their work is guided by a manual titled Claims Procedures. Eskom’s legal liabilities
towards third parties are insured, and Eskom only pays claims where there
was negligence that was the cause of injuries or damage to property.
In ‘grey’ cases, Eskom would make an offer of settlement, based on the quantum
calculated by an expert.
Eskom has not done any research on their claims history and performance, so
there are no statistics covering facets like the trend in claims over time, percentages
of claims that succeed, the reasons for those that do not succeed, the procedures
in deciding on the veracity or reasonableness of claims, and the time lag
between the submission of a claim and the settling thereof. Neither do the two
officials have the manpower to extract these statistics from their files. As a consequence,
this author obviously cannot comment on the efficiency of the claims
handling.
S 23 of the Electricity Regulation Act grants Eskom powers of entry and inspection.
Any person wishing to enter any premises must — “if possible” — make the
necessary arrangements with the legal occupant of the premises before entering
and adhere to all reasonable security measures of the occupant or owner. In
terms of ss 23(3), “damage caused by such entry, inspection or removal shall be
repaired or compensated for by the licensee”.
In terms of ss 5(b) of the Eskom Conversion Act, 2001, Eskom “must pay compensation
for any damage caused by its officers or employees in the performance
of their duties upon the land.” (Government Gazette no 22545: 3 August 2001)
As we saw under §1 — Public Relations, it is Eskom policy at present to pay only
for claims where Eskom had been negligent. This guiding principle seems to be

17
insurance-policy or common-law driven, as the above two clauses do not stipulate
negligence on the part of Eskom as a precondition for paying damage claims, although
one can infer from the context of the clauses that they were only meant
to cover damages caused by entry.
In this regard, s 26 of the Electricity Regulation Act (Annexure 3) is also of interest.
It states:
In any civil proceedings against a licensee arising out of damage or injury
caused by induction or electrolysis (sic) or in any other manner by means of
electricity generated, transmitted or distributed by a licensee, such damage or
injury is deemed to have been caused by the negligence of the licensee,
unless there is credible evidence to the contrary. [this author’s emphasis]
This section clearly puts the onus on Eskom to prove that it has not been negligent
(which, presumably, differs from the common-law situation). But nothing in
this section prevents Eskom Holdings for the sake of good public relations from
settling claims in cases where its infrastructure has caused damage like fires −
irrespective of whether Eskom was negligent — but provided the third party was
not negligent either. Another example of this kind of no-negligence claim might
be maintenance helicopters that cause game to run into fences.
7. Renting versus lump-sum payment
It has been suggested by some owners that they would prefer an income stream
in the form of rentals rather than a capital sum as compensation for the servitude.
Sons sometimes complain that their father had frittered the capital sum
away and they now have nothing to show for the inconvenience of the servitude.
If Eskom could offer as compensation a rental stream as an alternative to a capital
sum this might please these owners.
Thus, the question posed by Eskom is whether it is best to acquire the necessary
rights from the owner of the land through a rental agreement or through outright
purchase of the rights by paying a lump sum. The latter option is the conventional
way of creating a servitude in South Africa.
Financially speaking, the two payment modes should in the very long run yield
similar cost-return results before tax to the expropriated owner. In the shorter
run, the short answer to the eternal question of buy versus rent is: it all depends
on where we are in the property cycle. At times, when land’s market values rise
faster than market rentals, it pays to own; and vice versa. But in the very long
run they should converge.
In the light of the government’s policy of land redistribution and its ambitious
long-term targets in this regard, the government has become a net buyer of rural
land. This means there is a giant additional buyer in the market, pushing up demand.
This is so because the farmers that are bought out typically have cash in
hand to buy another farm. But not only does this giant buyer push up the demand,
it also takes supply off the commercial farm market. The result is steeplyrising
values that have no relation to economic fundamentals. The statement
about steeply-rising land values is based on anecdotal evidence, and does of
course not apply to all parts of South Africa. Also, it can be assumed that certain
types of agricultural land are currently rising as a consequence of the strong
grain prices, but this phenomenon is purely cyclical and should not be confused
with the structural shift in demand described above. In addition, it is claimed that

18
the rise of the biofuels industry is internationally also creating a structural rise in
demand for agricultural products and, therefore, one might assume, land.
Thus, because of state intervention in the marketplace and maybe the rise of the
biofuels industry, one could expect that land values will rise faster than land rent
for a long time to come. This is so because one suspects that land rents will be
closer aligned to economic fundamentals than capital values. After all, not many
farmers will lease land at a rental that yields a negative cash flow. This analysis
implies that, purely from a financial point of view, Eskom should rent the rights.
But high-voltage lines and utility corridors have a long life expectancy, and who
can say what South Africa, or the world, will be like in two decades? In addition,
one can argue that the business of Eskom Transmission is to transmit energy –
not to take a view on the property market.
From Eskom’s point of view, another argument in favour of renting rather than
buying is the cash-flow requirement – especially given Eskom’s heavy capital
commitment in decades to come. In the greater scheme of things, this probably
does not weigh heavily as an argument, but Eskom’s treasury department will be
better equipped to comment on this aspect.
Thus, in sum, there are two financial arguments in favour of renting.
From a legal point of view, the Constitution (ss 25(b)) and the Expropriation Act
(ss 12(a)) only speak of the ‘amount’ of compensation, whereas the Electricity
Regulation Act is silent on this matter but does refer to the above-mentioned
acts. ‘Rent’ or ‘renting’ or ‘leasing’ is not mentioned, and clearly renting as an
option never occurred to the legislator. Whether, under the circumstances, renting
would be legal, is a matter of interpretation, that is, whether “amount” may
include “rental amount”. However, as stated above in §5.1, the Minister has not
exercised his powers in terms of ss 27(2) of the Electricity Regulation Act yet,
and this may allow him the opportunity to permit explicitly the possibility of renting.
From the landowner’s point of view, and again, financially speaking, there should
not be any difference between receiving a lump sum payment from Eskom and
receiving a rental stream. The reason is, of course, that the owner could invest
the lump sum in an Eskom or government bond or equity, or any other incomeproducing
investment and, thereafter, receive an interest/dividend stream on this
capital amount. Should Eskom go the renting route, or offer it as an alternative,
the owner would similarly receive an income stream (in the form of rentals);
there is no difference in principle. However, there might be psychological reasons
peculiar to individuals for preferring the one mode of payment above the other.
What counts heavily against a rental agreement by Eskom with the owner, is the
administrative cost and hassles for Eskom. Establishing the market rentals initially
would be at least as much work as determining the market value of the tobe-encumbered
land. But thereafter the rentals will have to revert to market levels
every few years – an expense that Eskom does not have at present. In addition,
keeping track of Eskom’s thousands upon thousands of potential “landlords”
and paying them on time would almost certainly become a nightmare and create
much more animosity than the current situation. Subdivisions of farms after creating
the servitude will complicate matters even further.
As previously stated in §3.6, wayleave agreements in the United Kingdom are
paid by way of rentals, but considering the nature of these agreements, there is
no choice in the matter because these agreements are for a limited period. Limited-period
agreements naturally also result in higher administrative costs.

19
Another example of a utility that pays rental can be found in Alberta, Canada. The
power transmission company AltaLink in Alberta, Canada, pays rental of up to
$CAN945 per annum for a single-circuit 500-kV tower and up to $CAN1155 for a
double-circuit tower (Transmission & Distribution World). This means that the extra
line increases the rental by up to 22%, compared to Eskom’s current policy of
adding 10% per line. (Note: The rentals quoted here have just been increased
five fold. Canadian dollars are now on a par with the US dollar.)
8. How to quantify loss of business
We have previously seen in §4.1 that many European countries provide liberal
payments to businesses affected by property acquisition. With the growing
number of eco-tourist and game farms, value diminution through visual impairment
especially, is becoming an issue in South Africa. The question is how to approach
the value-loss calculation.
The correct point of departure is to separate the business from the real estate. In
practise, this is easier said than done, but professional valuers are au fait with a
similar problem when valuing a hotel or guest house, or a petrol station.
Agricultural land, like residential property, is typically traded on a directcomparison
basis. For instance, the farm under irrigation is worth so many rands
per hectare, or a modern house with three bedrooms should sell for about Rx
in this suburb. The comparisons are as a rule derived from sales. Properties like
these are typically not valued on an income-yield basis because the market actors
use the direct-comparison method to set prices (“I hear my neighbour has
just sold his farm for Rx per hectare”). Nevertheless, one could, as a check, impute
the income yield after having used the comparative-sales method to value
the real estate, provided one has the going market rental of course.
A trap in the valuation of farms is that many sales include livestock, implements
or game. These must of course be stripped out before the sale can be used as a
comparison.
For all practical purposes, going-concern businesses can only be valued using the
income approach – by either using discounted cash flow (DCF) or capitalisation,
or a combination of these. In lieu of capitalisation, one could, of course, use its
inverse, viz. the price-earnings (PE) ratio (e.g. a 20% capitalisation rate equals a
PE ratio of 5). These approaches are all inter-related. In valuing businesses, the
direct-comparison method is generally not possible because of a lack of direct
comparisons.
A crucial assumption to make when valuing a business where the owner of the
business also owns the real estate occupied by the business, is to assign, as an
expense to the business, a notional market rental for the use of the real estate.
In order to quantify the loss suffered by the business, the valuer should value the
business before and after the creation of the servitude. The difference in the two
scenarios will be discernible in the cash flow, and it might also show up in the
capitalisation rate/ discount rate/ PE ratio. In practise it might be extremely difficult
to quantify the loss.
As a matter of interest, when valuing a business using the income method, the
value thus calculated in this way implicitly includes ‘goodwill’.

20
There are few valuers in South Africa that do both business and real estate valuations
– and one tends to question the quality of either if they do both. In many
instances it might be wise to appoint a team consisting of a registered Professional
Valuer or Professional Associated Valuer to value the real estate and a
business valuer to value the business.
9. Summary of conclusions
There is a dearth of research on the impact of transmission lines on agricultural
property values in the international literature and there is none on the impact on
tourism. The literature discussed here has shown that the major factors to be accounted
for in compensating for the negative impact of transmission lines on
property values are:
• visual encumbrance
• the marketplace fear of EMF exposure (more of an urban problem)
• financial loss owing to severance, with smaller farms being more affected
• damage to irrigation fields.
Visual encumbrance is typically a major factor in urban, residential transmission
lines, but increasingly it could be expected to become a factor affecting values of
some rural properties − and businesses on such properties − in the light of the
growing incidence of eco tourism and game farming.
The value impact on agricultural land depends on the line design and type of
farming. A transmission line could affect the operation and movement of field
machinery and irrigation equipment, fieldwork patterns may need to be altered,
soils are compacted, wind breaks may be removed, and weed encroachment is
harder to control beneath the lines. But most crops can still be grown and livestock
can graze. The height of trees and crops in the servitude are, however, controlled
to prevent a fire hazard.
Landowners in the Gamma-Grassridge corridor have security concerns related to
access roads and fencing because of the possibility of poachers, stock theft and
damage to crops and infrastructure. Claims for damage that may result from possible
(future) unlawful acts of the employees or agents of the expropriator during
their activities on the expropriated land cannot be included in the compensation
fee. Should such damage be caused, the owner could claim damages for the
delict. However, the solatium should cover the inconvenience of a possibly higher
crime rate.
Another novel concern is that helicopters flying over the land to do aerial maintenance
of the lines make animals skittish and they can injure or kill themselves by
running into fences as a result. These losses should morally be claimable, even
though Eskom maybe was not exactly negligent.
In many states in the United States, courts will allow compensation for impairment
of the view from a property, but not for the loss of visibility of the property.
But negative value effects due to visual encumbrance are also experienced
by those without transmission lines and pylons on their property. However, not
many courts allow view impairment compensation for such properties. In Europe
the expropriators look sympathetically at this problem. In South Africa, the courts
do not grant compensation for intended new structures on neighbouring land that
had not been expropriated.

21
Agricultural sales data are much less common than urban sales, and this explains
why such little research has been done on the impact of transmission lines
on agricultural land values. In the case of poor market evidence to calculate the
fair market value before and after, the discounted cash flow approach can be
used, whereby all future income and expenditure are discounted back to the present
day at an appropriate discount rate. However, this method is highly sensitive
to changes in key variables, so comparable sales should be used where available.
Agricultural land also differs greatly because there are many types of agricultural
use; different qualities of land and also the availability of resources differ
for each parcel.
In the UK, enhanced compensation of 150% of the arable rate is paid where the
movement of machinery in commercial orchards and hop gardens is hampered by
the presence of towers.
The smaller farms in the southern section of the proposed Eskom corridor, from
Kleinpoort to the Grassridge substation outside the Nelson Mandela Bay metropolis,
are more likely to have serious severance effects.
There is easy access from existing roads for most of the proposed corridor for the
Gamma-Grassridge line project. Where roads do need to be constructed, they
will be aligned and constructed according to the landowner’s specifications so that
the road may serve both Eskom and the landowner. In the Schultz-Hanford
transmission line project, if the landowner has equal benefit from the new access
road, only 50% of the full compensation fee is paid (Bonneville Power Authority,
2003b).
It is inevitable that the American trend to create additional rights within existing
corridors will soon reach South African shores. By creating a corridor that
would allow for the accommodation of additional rights like optic-fibre cables in
the future, Eskom can potentially add more value to its corridors. This has important
legal, financial and marketing implications.
In Europe, expropriators provide liberal payments to businesses affected by
property acquisition, project construction or highway operations. These payments
range from the liquidation and acquisition of businesses to the negotiated reimbursement
of moving and relocation costs and incidental expenses incurred by
displaced businesses.
In South Africa, the word “property” as used in the Constitution includes noncorporeal
assets, and the expropriation of businesses or injurious affection of
businesses should, therefore, be compensated for by the expropriator.
Also in Europe, countries have methods for facilitating early possession or acquisition.
These methods include mediation and advance payment.
Compensation for taking the full rights of a property is made up of two main
categories (heads of claim), and should not exceed:
o The market value of the expropriated property
o Further actual financial loss suffered by the owner.
In addition, a solatium might also be payable in terms of s 12(2) of the Expropriation
Act of 1975 (165; Annexure 2).
The head for further actual financial loss can be broken down into:

o Value derogation to the remainder through severance (afskeiding)
o Disturbance (ontwrigting)
o Injurious affection (nadelige aantasting).
22
In order to be valid, a severance claim should be:
(a) a claim for financial loss
(b) caused by the taking of the expropriated portion, and
(c) related to land value.
No damages claim is payable if it is “remote, speculative, contingent, conjectural,
peculiar to the land owner, or strictly an inconvenience”.
Examples of disturbance losses are: costs of moving stock and machinery; telephone
removals; loss of goodwill; and temporary loss of profit of the business.
Injurious affection describes financial loss inflicted on the remainder through
the intended use by the expropriator of the expropriated portion. An example
would be visual impairment. Gildenhuys proposes that in the event of value impairment
of the remaining portion of a claimant’s property caused by the intended
use by the expropriator of the expropriated portion, the owner be compensated
for this value derogation. In terms of s 2(2) of the Expropriation Act of
1975, the expropriator may under these circumstances expropriate the remainder
but he is not forced to do so.
A solatium is the component of compensation that relates to non-financial loss,
e.g. inconvenience, nuisance, remorse and suffering. This is prescribed by the
Expropriation Act of 1975.
As for power-line servitudes, the following factors should be considered in evaluating
the compensation:
o Extent of the land taken
o The remaining use the owner has over the land taken: Should the owner not
be able to use the affected land at all, the compensation might be equal to
the full market value.
o The duration of the servitude
o The value diminution on the whole property as a result of the visual encumbrance
of the power lines and towers
o Loss of privacy
o The inconvenience when maintenance personnel enter the property.
Compensation for financial loss is subjectively determined based on the personal
circumstances of the expropriated person. In contrast, the market value of
the expropriated property is determined objectively, without reference to the
personal circumstances of the expropriated person. Hence, the unwillingness of
the owner to part with his property should play no role in the determination of
the compensation amount. Neither should the sentimental value the owner attaches
to his property influence the market value.
The Expropriation Act of 1975 prescribes that compensation should not be more
than the market value of the property, plus an amount to cover further actual
financial loss. Also, the overriding compensation principle enshrined in the Constitution
is one of justness and equity, reflecting an equitable balance between the
public interest and the interests of those affected.
Where a right is expropriated (excluding a registered right to minerals), the compensation
norm is the financial loss suffered (ss 12(b) of the Expropriation Act of

23
1975). Where the relevant right has a market value, the compensation could,
thus, be market value.
Thus, Eskom should be wary of trying to solve its rights-acquisitions problems by
spending additional money. This is a slippery road, and it is illegal.
Claims for damage that may result from possible (future) unlawful acts of the
employees or agents of the expropriator during their activities on the expropriated
land cannot be included in the compensation fee. Should such damage be
caused, the owner could claim damages for the delict.
Eskom has not done any research on its claims history and performance, so there
are no statistics covering facets like the trend in claims over time, percentages of
claims that succeed, the reasons for those that do not succeed, the procedures in
deciding on the veracity or reasonableness of claims, and the time lag between
the submission of a claim and the settling thereof.
Currently, Eskom policy is to pay only for claims where Eskom had been negligent.
This policy may be legal but is not necessarily good PR.
When calculating the financial loss suffered by a business, the correct point of
departure is to separate the business from the real estate. The normal way to go
about it is to value the business before and after the creation of the servitude.
The difference in the two scenarios will be discernible in the cash flow, and it
might also show up in the capitalisation rate/ discount rate/ PE ratio. In practise
it might be extremely difficult to quantify the loss.
There are few valuers in South Africa that do both business and real estate valuations
– and one tends to question the quality of either if they do both.
10. Recommendations
This author is not a legal specialist, in fact he has never studied law; hence, all
recommendations regarding legal aspects should be checked by a competent person.
10.1 In principle, merely spending additional funds will not be sufficient for
Eskom to solve its PR and “consumerism” issues . The reason for this is
that Eskom is not legally allowed to pay more than just and equitable
compensation – i.e. a balance must be found between the rights of the
owner and the public. Thus, the basis of compensation should be the market
value of the expropriated rights plus further financial loss plus a solatium.
10.2 The compensation package should be computed as follows:
a. Compensation for the taking of the rights. In the case of the creation of
servitudes for a corridor, these rights will be worth less than the market
value of the full rights. For instance, cognisance should be taken of the
remaining use of the corridor. This might differ, depending on the type of
farming. Tunnicliff (2007) identifies the following homogeneous types of
land:
• Natural grazing (veld)
• Cultivated grazing (pastures)
• Cultivated lands (different types, e.g. maize, sunflower)

24
• Arable lands
• Game farms and game-farm potential
• Eco-tourism and eco-tourism potential
• Irrigation
• Orchards (added by this author)
• Other
In the case of the taking of land for service roads, this author is of the
view that the owner did not ask for the road in the first place, and it would
be unjust not to compensate him/her fully for this, even if the farmer
might also have a use for it. An analogous case might be the situation
where an owner erects a fence between him and his neighbour, without
the neighbour consenting.
b. Further actual financial loss (if applicable), i.e.
• severance loss (especially smaller farms might be affected),
• disturbance costs (e.g. costs of moving stock and machinery and
temporary loss of profit of the business), and
• injurious affection (e.g. visual encumbrance on the whole of the
property; loss of privacy; inconvenience when maintenance personnel
enter the property; permanent loss suffered by eco-tourist
business).
Many of the above compensation items are subjective, and Eskom is advised
to develop compensation norms to act as guidelines to valuers.
c. Solatium, as per the prescription of the Expropriation Act of 1975. This
would, in effect, cover, inter alia, the possibility of a higher crime rate as a
result of improved access to the farm.
10.3 From a conceptual point of view, it is crucial to separate the affected
business from the real estate.
10.4 Operational and project damages suffered by the expropriated owner
should be paid by Eskom, even though Eskom had not been negligent.
This should help to improve owner perceptions over time. An example
would be game running into fences as a result of helicopter maintenance.
10.5 With damages claims and maintenance in mind, a database of owners
should be created and maintained, which would allow for regular communication
with owners, including a week-ahead warning of planned maintenance.
10.6 The telephone number, fax number and e-mail address of Eskom for laying
a claim for damages should be communicated regularly.
10.7 Sadly, we cannot recommend that compensation be paid to neighbours
whose market values might be injuriously affected by the visual encumbrance
of the pylons.
10.8 Currently, Eskom pays 10% on top of the market value of the affected
strip for every additional high-voltage line that is erected. We would recommend
that this policy be continued, with the proviso that the market
value of a servitude (a property with reduced rights) is not the same as
the market value of the same property with full rights.

25
10.9 It is important to encourage quick settlements. Apart from longer-term
good PR, this can be achieved in four ways:
• Make an offer at a 10% premium to the calculated compensation
(including actual financial loss but excluding solatium) should the
owner accept the offer within 30 days. A narrow interpretation of
the Expropriation Act of 1975 would render this approach illegal, as
being above market value. But, this author would argue that this
would not be illegal because delays cost dearly in the case of capital
projects, especially when the country runs out of electricity; and
because the Constitution demands justness and equity to both the
owner and the public. Alternatively, or in addition, offer an advance
payment for early acceptance of the offer (as in Europe).
• Offer the owner an option between a lump-sum payment and a
long-term inflation-proof Eskom bond. The inflation-hedge bond
would start off at a lower income-yield, but the income stream
would grow in line with the CPI. This might need to be a special
small-denomination issue.
• Include in the offer document a clause that promises the owner
50% of the rental/capital value should this corridor be rented to a
third party for, say, telecom lines one day. The individual owner’s
share can be calculated as either the fraction of his compensation
to the total compensation for the corridor, or the linear metres of
the line crossing his farm as a fraction of the total length of the
corridor.
• Grant an interview with the local newspaper and community radio
in which the above procedure and policies (§10.9 and §10.10) are
explained, in order to garner local support.
10.10 Where − in spite of all the above ‘carrots’ (§10.9) − owners are difficult,
Eskom should expropriate the strip needed for the corridor. Eskom would
probably not be allowed to expropriate more than what it requires for the
corridor (Gildenhuys, 65), but in this case the owner will not be offered
the early payment, the premium compensation or the share in the profit
should the corridor be rented to a third party one day. This would make
an example of the difficult owners.
In this regard, concern has been expressed that land redistribution might
interfere with a policy of expropriation, since land expropriated by Eskom
would, thereafter, effectively belong to the State. Land redistribution is
governed by The Provision of Land and Assistance Act, 1993, as amended
by the Provision of Certain Land for Settlement Amendment Act, 26 of
1998. The provisions allow the Minister to designate state-owned land for
human settlement, and it is, thus, unlikely that the Minister would interfere
with Eskom’s activities in this regard.
10.11 It is in the national interest to fast-track these expropriations, and the legal
framework and procedures should be revisited to see what can be
done to speed up the process, including the possibility to erect the line
before the expropriation and compensation process has been completed.
10.12 We advise against going the rental route, considering the cost and administration
hassles and possible PR implications should the administration
be flawed.

26
10.13 At present, Eskom has no handle on how efficiently its claims for damages
are handled. The only way to get this information is to commission a
special study, in which the claims of the past number of years are analysed.
10.14 The ideal is to have one contact person for the negotiations. Thus, consideration
should be given to unifying the posts of valuer and negotiator.
Special sales-technique training should be given to these persons. Unfortunately,
we are not optimistic that the valuer of the business and the
real estate could be the same person.
10.15 In principal, this author cannot see why the creation of a servitude for
purposes of a substation be treated differently from the creation of a servitude
on a corridor.
End

27
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Annexure 1:
Section 25 of the
Constitution
of the Republic of South Africa Act,
No. 108 of 1996
25. Property.-(1) No one may be deprived of property except in terms of law of
general application, and no law may permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application--
(a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and manner of
payment of which have either been agreed to by those affected or decided or approved
by a court.
(3) The amount of the compensation and the time and manner of payment must
be just and equitable, reflecting an equitable balance between the public interest
and the interests of those affected, having regard to all relevant circumstances,
including-
(a) the current use of the property;
(b) the history of the acquisition and use of the property;
(c) the market value of the property;
(d) the extent of direct state investment and subsidy in the acquisition and
beneficial capital improvement of the property; and
(e) the purpose of the expropriation.
(4) For the purposes of this section-
(a) the public interest includes the nation’s commitment to land reform, and to
reforms to bring about equitable access to all South Africa’s natural resources;
and
(b) property is not limited to land.
(5) The state must take reasonable legislative and other measures, within its
available resources, to foster conditions which enable citizens to gain access to
land on an equitable basis.
(6) A person or community whose tenure of land is legally insecure as a result of
past racially discriminatory laws or practices is entitled, to the extent provided by
an Act of Parliament, either to tenure which is legally secure or to comparable redress.
(7) A person or community dispossessed of property after 19 June 1913 as a result
of past racially discriminatory laws or practices is entitled, to the extent provided
by an Act of Parliament, either to restitution of that property or to equitable redress.
(8) No provision of this section may impede the state from taking legislative and
other measures to achieve land, water and related reform, in order to redress the
results of past racial discrimination, provided that any departure from the provisions
of this section is in accordance with the provisions of section 36 (1).
(9) Parliament must enact the legislation referred to in subsection (6).

Annexure 2:
Section 12 of the
EXPROPRIATION ACT
NO. 63 OF 1975
12. Basis on which compensation is to be determined.—
(1) The amount of compensation to be paid in terms of this Act to an owner in
respect of property expropriated in terms of this Act, or in respect of the taking,
in terms of this Act, of a right to use property, shall not, subject to the provisions
of subsection (2), exceed—
a. in the case of any property other than a right, excepting a registered right to
minerals, the aggregate of—
i. the amount which the property would have realized if sold on the date of notice
in the open market by a willing seller to a willing buyer; and
ii. an amount to make good any actual financial loss caused by the expropriation;
and
[Para. (a) amended by s. 11 (a) of Act No. 45 of 1992.]
b. in the case of a right, excepting a registered right to minerals, an amount to
make good any actual financial loss caused by the expropriation or the taking of
the right:
[Para. (b) substituted by s. 11 (b) of Act No. 45 of 1992.]
Provided that where the property expropriated is of such nature that there is no
open market therefor, compensation therefor may be determined—
(aa) on the basis of the amount it would cost to replace the improvements on the
property expropriated, having regard to the depreciation thereof for any reason,
as determined on the date of notice; or
(bb) in any other suitable manner.
[Sub-s. (1) amended by s. 11 (c) of Act No. 45 of 1992.]
(2) Notwithstanding anything to the contrary contained in this Act there shall be
added to the total amount payable in accordance with subsection (1), an amount
equal to—
a. ten per cent of such total amount, if it does not exceed R100 000; plus
b. five per cent of the amount by which it exceeds R100 000, if it does not exceed
R500 000; plus
c. three per cent of the amount by which it exceeds R500 000, if it does not exceed
R1 000 000; plus
d. one per cent (but not amounting to more than R10 000) of the amount by
which it exceeds R1 000 000.
[Sub-s. (2) substituted by s. 1 of Act No. 3 of 1978 and by s. 11 (d) of Act No. 45
of 1992.]

Annexure 3:
Sections 23, 26 and 27 of the
Electricity Regulation Act, No 4 of 2006
Powers of entry and inspection
23. (1) Any person authorised thereto by a licensee may at all reasonable times
enter any premises to which electricity is or has been supplied by such licensee,
in order to inspect the lines, meters, fittings, works and apparatus belonging to
such licensee, or for the purpose of ascertaining the quantity of electricity consumed,
or where a supply is no longer required, or where such licensee may cut
off the supply, for the purpose of removing any lines, meters, fittings, works and
apparatus belonging to such licensee.
(2) Any person wishing to enter any premises in terms of subsection (I) shall −
(a) if possible, make the necessary arrangements with the legal occupant of the
premises before entering such premises and shall adhere to all reasonable security
measures, if any, of the occupant or owner of the premises;
(b) exhibit his authorization at the request of any person materially affected by
his activities.
(3) Damage caused by such entry, inspection or removal shall be repaired or
compensated for by the licensee.
Liability of licensee for damage or injury
26. In any civil proceedings against a licensee arising out of damage or injury
caused by induction or electrolysis or in any other manner by means of electricity
generated, transmitted or distributed by a licensee, such damage or injury is
deemed to have been caused by the negligence of the licensee, unless there is
credible evidence to the contrary.
Expropriation
27. (1) The State may, in order to facilitate the achievement of the objectives of
this Act, expropriate land, or any right in, over or in respect of land, on behalf of
a licensee in accordance with section 25 of the Constitution and section 2 of the
Expropriation Act, 1975 (Act No. 63 of 1975).
(2) The Minister must prescribe the procedure to be followed in giving effect to
subsection (1).
(3) The State may exercise the powers contemplated in subsection (1) only if −
(a) a licensee is unable to acquire land or a right in, over or in respect of
such land by agreement with the owner; and
(b) the land or any right in, over or in respect of such land is reasonably required
by a licensee for facilities which will enhance the electricity infrastructure
in the national interest.