The ballooning municipal debt to Eskom cannot be sustainably reduced unless municipalities that were heavily indebted to the state power company were treated as financially distressed.
This would allow more drastic national and provincial intervention under the Constitution and the Municipal Finance Management Act (MFMA).
Nationally, the outstanding municipal debt to Eskom, South Africa’s state power entity, stood at R120.26 billion at the end of July 2026.
The Constitution and the MFMA provide a framework for municipalities facing financial distress, which should be considered for municipalities highly indebted to Eskom. It would allow the province, national government, through the National Treasury and the Department of Cooperative Governance and Traditional Affairs (Cogta), to step in.
When municipalities are deemed to be in financial distress, they can seek voluntary assistance from national and provincial governments.
Alternatively, the national and provincial governments can intervene and impose a financial recovery plan or punitive steps, such as withholding equitable or conditional share grants or introduce conditional spending, compel debt-workout agreements, until the municipality complies with proper financial governance.
In worst circumstances, the municipality could be placed under administration and the municipal council suspended and an administrator or technical teams appointed to run the affairs of the municipality until financial order has been restored.
When municipalities are deemed to be in financial distress, it would empower Eskom, the National Treasury and Cogta to intervene more actively.
This would also allow Eskom to more successfully pursue a strategy of getting the worst defaulting municipalities to conclude distribution agency agreements, under which the municipality appoints Eskom as an agent to take over the municipal electricity distribution function, including collecting payments from consumers for electricity purchases.
The money would then be paid into Eskom’s bank account rather than the municipality’s. It could also give Eskom the power to, in exceptional circumstances, allow consumers to make their payments directly to Eskom; rather than to a municipality. Or in worst cases, by designating municipalities lacking capacity to manage their electricity delivery. As financially distressed, the municipalities could, as a last resort, be placed under administration, with the possibility of suspending the council and appointing an administrator or technical teams to run the affairs of the municipality until order has been restored.Struggle to get payments
Eskom has struggled to bring defaulting municipalities to heel.
In March 2026, Eskom notified 14 municipalities that their electricity supply could be cut off unless they paid what they owed the utility.
The Treasury set a deadline of 1 September for failing municipalities to appoint Eskom as an agent.
Cogta issued a guideline for an expedited process for municipalities to comply with the legal requirements.
The deadline passed without any of the municipalities concluding an agency agreement with Eskom.
The South African Local Government Association has asked for an extension of the Treasury deadline to give municipalities more time.
Eskom has also tried to get struggling municipalities to switch to a prepaid system. It is planning to install 6.2 million intelligent devices by March 2029, pushing municipalities to prepaid systems.
The Treasury is also implementing a separate initiative to install 250 000 smart meters countrywide in the worst affected municipalities.
However, struggling municipalities have not widely adopted the pre-paid system.
Eskom, along with Treasury, has also focused on getting municipalities to agree to debt through payment arrangements. Treasury has established an Eskom Restructuring Task Team to coordinate Eskom municipal debt solutions.
Electricity and Energy Minister Kgosientsho Ramokgopa, responding to Parliamentary questions recently, said 83 municipalities were in formal debt-recovery processes; of those, 71 participated in Treasury’s Municipal Debt Relief Programme launched in April 2023.
In order to participate in distribution agency agreements with the power utility, whereby Eskom partners with the municipality and takes over billing, distribution and collection, the councils of municipalities have to sign council resolutions to complete Section 79 processes, which are legislative consultation procedures the municipalities must follow.
Eskom has said that distribution agency agreements were a temporary measure and that they did not constitute a complete takeover of municipal electricity services. “It is envisaged that the partnership will be in place for a minimum of three years until the municipal electricity operations are stabilised,” Eskom said. “Municipalities retain their distribution licences; Eskom becomes the agent to manage operations and collections on behalf of the municipality.”Behind the debts
Municipalities face persistent Eskom debt challenges related to lack of municipal capacity, poor governance, incompetence and corruption.
Municipalities also face non-payment. With the economy tanking, citizens are struggling to pay. Failing municipalities — caused by corruption, incompetence and poor governance — have also led to local economic decline, infrastructure collapse, leading businesses to collapse or move. This, in turn, has reduced the revenues of municipalities, creating a vicious cycle. And many municipalities increase rates, while not delivering public services.
Eskom can introduce credit control measures. However, it cannot practically disconnect large portions of municipal electricity, as citizens and businesses who pay will also suffer, causing energy insecurity.
Eskom could allow customers to make their payments directly to the power utility. However, this would deprive municipalities of revenue.
The power utility also wants troubled municipalities to sign prepaid system agreements with it in which municipalities will get only electricity they can pay for. This could leave residents without power for periods.
There are prescribed processes for municipalities to outsource municipal services, such as electricity provision. One of them is for municipal services have to go out on competitive tender.
The Promotion of Administrative Justice Act requires that legal processes should be followed if Eskom takes over municipal electricity services and that it maintains the stability of electricity supply to customers.
At municipal level, the tender system is a massive source of patronage for local governing parties, tenderpreneurs and criminal groups. Municipalities issue public procurement tenders for electricity services, whether for power distribution, infrastructure maintenance and renewable energy integration.
BEE is a key requirement for the municipal contracts. There are high levels of manipulation of BEE contracts at the local level for patronage bases or by criminal groups linked to the municipal governing parties. If Eskom takes over delivery of electricity at local level, it will interrupt the local tenderpreneurship system. Why interventions often fail
If using the Constitution and the MFMA procedure for municipalities in financial distress to tackle Eskom debt, the municipal financial distress system will have to be overhauled because the system is often not working.
Administrators assigned to turnaround struggling municipalities are sometimes appointed even though they are not independent; they are often ANC deployees. They do not take firm action against ANC council members or municipal public servants. Municipal public services are politicised through cadre deployees who are directly linked to the politicians in council.
Administrators, if they are independent, often see politicians interfering in their work. When administrators are appointed, the errant councils are, in many cases, not dissolved and the municipal public servants responsible for wrongdoing are not disciplined.
Administrators often also do not have the power to restructure the municipal administration, retrench, cut costs or end dodgy procurement.
Even if the administrators turn around the municipality, they often hand over the newly healthy municipality to the same politicians and public servants who caused the financial crisis.
Prof William Gumede is founder of the Democracy Foundation and author of Restless Nation: Making Sense of Troubled Times (Tafelberg). The opinion piece is based on his comments in a recent interview with eNCA on how to resolve municipalities’ Eskom debt.