/ 20 August 2023

R63 billion municipal debt places Eskom at risk, says minister

Eskom Nersa23
Matimba coal-powered station in Lephalale. (Paul Botes/AFP)

Electricity minister Kgosientsho Ramokgopa said on Sunday that spiralling debt by South Africa’s biggest municipalities is undermining Eskom’s distribution capacity and will result in communities continuing to battle for electricity long after load-shedding is ended.

In his weekly briefing on attempts to stabilise and improve the electricity supply, Ramokgopa said that despite progress in addressing electricity generation and transmission, a R63 billion municipal debt was stifling attempts to address distribution challenges.

Ramokgopa said that a combination of the failure to collect revenue, illegal connections and a decline in sales of electricity to consumers due to theft and load-shedding meant that municipalities’ ability to pay their debts to Eskom was worsening.

The inability to abide by the maximum notifiable demand – the amount of electricity the municipality was scheduled to receive from Eskom –  meant that communities were subjected to load reduction in addition to load shedding.

Failure to pay Eskom also undermined the entity’s ability to service and maintain the electricity distribution network and resulted in replenishment budgets being depleted on fixing repeat breakdowns of sub-stations and other transmission units.

“We have to do something to resolve this,” Ramokgopa said. “We are in discussions with colleagues from distribution, from national treasury and from Salga to try and address the debt of the municipalities.”

The metros and the rest of the country’s top 20 municipalities were responsible for 77% of Eskom’s total overdue debt, which currently stood at R63 billion and there needed to be an “honest conversation” about the decreasing financial viability of councils if the electricity crisis were to be addressed.

Municipalities were being offered relief packages, but needed to make an arrangement to pay their arrears – and stick to it for 12 months – before the interventions on offer from Eskom and treasury were available.

Thus far 13 councils had applied and seven had been approved, Ramokgopa said.

While there had been progress in adding new generation capacity, with around 66 new gigawatt of electricity in the pipeline through a number of private sector initiatives and with the addition of household solar, the municipal debt issue continued to be “the elephant in the room”, Ramokgopa said.

“The annual growth of debt is going to increase exponentially,” Ramokgopa said. “This is going to continue to place a burden on Eskom.”

The rate of failure of mini substations which were not designed to accommodate the increase in demand due to illegal connections, was such that suppliers of parts “cannot keep up with the demand”.

“Demand for replacement parts could not be planned for because we don’t know at which point a transformer is going to fail as we don’t know who is connecting illegally,” Ramokgopa said.

He said some municipalities had failed to honour payment agreements because their revenue base had been so badly eroded that they were unable to sustain themselves and had liquidity and other economic problems outside of Eskom and load-shedding.

“There is a problem of the financial unviability of the municipal spaces as we know them, which has huge implications on the ability of Eskom to replenish its distribution infrastructure,” Ramokgopa said.

As a result, even when load-shedding was ended, communities were still going to battle for electricity supply due to the failure of distribution infrastructure, unless the issue of municipal debt was resolved.

“We are still going to find answers on how we resolve that. We are attending to all, not waiting to resolve load-shedding and then go and address distribution. We are addressing the entire ecosystem so that we have a comprehensive solution to the restoration of electricity  provision in the country.”