/ 25 August 2023

Eskom moots taking non-paying municipalities’ distribution licenses

Eskom Gettyimages 1158766660
Eskom has announced a staggering loss of R23.9 billion for the financial year ended March 2023. (Waldo Swiegers/Getty Images)

Eskom is thinking about withdrawing the distribution licenses of municipalities that have been struggling to pay their accounts.

This is according to the utility’s distribution group executive Monde Bala who said at a media session on Thursday that it was considering doing this to encourage the municipalities to pay their debts.

“If they don’t pay, they run the risk of losing their licenses,” he said.

Bala said non-paying municipalities were a big challenge to Eskom’s fiscus. More than half of the 257 municipalities in the country have defaulted on their bills. 

He said municipalities owed the utility R63 billion.

He added that a combination of the failure to collect revenue and illegal connections meant that Eskom was unable to cover its own debt.

Without the licenses, municipal clients would not be able to receive electricity — Eskom would be solely responsible for distribution of power to them.

Acting group chief executive Calib Cassim said the 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”.

Eskom looking into taking over from municipalities

Bala said Eskom was also considering taking over electricity supply from those municipalities that are unable to repay their debt and service their accounts.

“It is something we still need to work through but it would entail Eskom supporting these municipalities as much as possible to the extent that we take over management of electricity delivery, including billing, managing connections. 

“Eskom will then collect the tariff as set by the municipality, keep the portion owed to Eskom, and give it back to the municipality,” he said.

He added that this arrangement would take into account that many municipalities rely on the profit from the sale of electricity to fund other programmes.

To help address the non-payment problem, the treasury introduced a municipality debt relief package in May. This enables 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 the conditions set up for them. These conditions include a three-year restriction on extra debt.

Many municipalities have applied for the relief, including Emfuleni municipality in Gauteng, which owes Eskom R7 billion.

On Sunday, electricity minister Kgosientsho Ramokgopa said municipal debt was undermining Eskom’s distribution capacity, which would continue to have an effect on communities after load-shedding ends.

No more borrowing

Cassim said although the debt was a concern, Eskom was in a better position financially and would not need to borrow any more money from the treasury.

In July, the treasury provided Eskom with R16 billion, as part of the debt-relief announced in February.

Cassim said Eskom expects to receive another portion of the money in October. Once fully transferred, over the next three to four years, the R254 billion will substantially reduce Eskom’s total debt of R423 billion.

“Management efforts can now focus on operations to deal with other challenges, such as governance and easing load-shedding,” Cassim said.

He added that the power utility was reasonably sure that the debt-relief programme would be enough. 

“After the five-year period, there will be a need for an optimal capital structure going forward. Those discussions need to happen with the treasury. We cannot repeat the mistakes of the past,” he said.

Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa