/ 8 July 2024

Municipalities owe Eskom R78bn, debt projected to soar to R3.1tn by 2050, says Ramokgopa

Kgosientsho Ramokgopa Briefing
Electricity Minister Kgosientsho Ramokgopa. (GCIS)

Minister of Electricity and Energy Kgosientsho Ramokgopa has warned that municipal debt owed to Eskom is projected to increase to R3.1 trillion by 2050, and will lead to the power utility’s collapse if it is not resolved.

Addressing the media on Monday, Ramokgopa said mismanagement and poor capacity at a municipal level had resulted in the recent implementation of load-reduction, causing electricity shortages for consumers.

He added that the failure to collect revenue, illegal connections and a decline in sales of electricity because of theft and load-shedding had worsened the ability of municipalities to pay their debt to Eskom.

“Municipalities have to pay back that money, and I did tell you that they simply don’t have the means to pay back that money,” he said.

“So in that solution you must protect the interests of Eskom as a going concern to ensure that municipalities are able to collect, but also protect the interests of the user,” he said.

But households that pay for electricity are at risk of “collateral damage in the form of load-reduction” because they are connected to a distribution network that is defaulting on payment.

Despite progress in addressing electricity generation and transmission, the current R78 billion in municipal debt was stifling attempts to address distribution problems, said Ramokgopa. 

“Eskom needs this money for it to be able to reinvest back into its own infrastructure. Municipalities have to pay back that money and … they simply don’t have the means to pay back that money,” he said. 

Ramokgopa called on defaulting municipalities to pay their debt by forcing people to pay. He said he had already had discussions with the cooperative governance and traditional affairs minister, Velenkosi Hlabisa, about municipal debt.

The head distribution at Eskom, Monde Bala, said: “Load-reduction is an intervention that we have implemented to ensure that we do not overload the infrastructure as the demand in the winter period is more than the grid was designed for. This leads distributors to take the preemptive step of load-reduction.”

Last month, City Power announced the implementation of load-reduction as a “last resort”, but it was necessary to safeguard the metro’s grid from collapse. 

Last year, City Power spent 80% of its budget for the financial year on replacing mini-substations that had been damaged as a result of cable theft and vandalism. 

The number of mini-substations replaced by January 2023 stood at almost 300, and cost the municipality R200 million.

Ramokgopa said people would continue to experience problems with electricity supply as a result of the failure of distribution infrastructure, unless the issue of municipal debt was resolved.

Eskom reported in November last year that municipal arrears had surged since 2021, increasing from R35 billion in 2021 to R45 billion in 2022, and then to R56 billion in 2023, before jumping to R75 billion during the first 11 months of the 2023-24 financial year. 

To help address the non-payment problem, the treasury introduced a municipal debt relief package in May last year to allow municipalities to apply to participate in a three-year scheme under which Eskom can progressively write off the debt if a municipality is able to comply with 14 given conditions, one of which is keeping up with current account payments to Eskom. 

But arrears continued to increase after the treasury launched the debt relief programme.  

Ramokgopa said the failure to pay back the money to Eskom was also behind tariff increases, which were increasing the cost burdens to consumers.

“These increases also have inflationary pressures. As Eskom applies for these tariff increases, municipalities add a surcharge, which makes the cost of doing business more expensive,” he said. 

“People are going to find it [more] difficult to afford food as they [already] do now. This problem must be resolved urgently.” 

He said some businesses have publicly said they are considering relocating because the infrastructure is unable to meet electricity demand. This causes job insecurity, leading to migration, which in turn means municipalities lose more revenue, Ramokgopa said.