One company fails to pay Eskom for R4 billion of electricity every year

City Power fails to pay Eskom R3 billion to R4 billion in electricity every year due to its mismanaged billing system and inability to collect revenue. 

This deficit also includes illicit connections to the grid in Johannesburg, with large amounts of electricity going unbilled. 

Governance expert Prof Alex van den Heever told Newzroom Afrika that this is nothing new, with the deficit being a longstanding problem for City Power. 

It has created a structural debt owed to Eskom, which can only be reset through deals brokered between the City of Johannesburg and the utility. 

City Power is a vital municipal entity that is fully owned by the City of Johannesburg. It is the primary utility for distributing power to customers across Johannesburg. 

The utility does not generate its own electricity, with it operating as an electricity distributor rather than a primary bulk power generator. 

It buys electricity in bulk from Eskom and independent power producers, which it then distributes across its 19,000 km network of power lines to customers. 

City Power is also responsible for the metering and billing of electricity in Johannesburg, with the revenue collected used to pay Eskom for power. 

This is where things have gone wrong in recent years, Van den Heever explained, as the utility has mismanaged its billing system. 

City Power’s past decade has been characterised by a persistent failure to collect sufficient revenue from end users to cover its bulk electricity purchases. 

“The bulk purchasing from Eskom is always at a deficit, because they are never raising the revenue to cover the bulk purchases,” Van den Heever said. 

“That deficit grows and grows. It is growing at a bout R3 billion to R4 billion a year in the case of City Power and has been for a considerable time.”

Van den Heever estimated that in recent years, City Power has accumulated a structural deficit of R25 billion owed to Eskom. 

This total is not what the utility currently owes to Eskom, as the City of Johannesburg and other players have regularly stepped in to help it manage this debt. 

Revenue collection collapse

The primary issue at City Power is the collapse of its revenue collection mechanisms, particularly its billing system. 

“The deficits are a consequence of the collapse of revenue-raising systems that are in place, and that is because no one is actually competent enough to run them,” Van den Heever said. 

Simply put, the money is not coming in, but the utility continues to spend on bulk power purchases and salaries. 

This is a difficult situation for City Power, as it cannot stop purchasing power, or Johannesburg would be in darkness. 

However, it also cannot remain in a structural deficit with Eskom and expect the City of Johannesburg and other entities to support it financially. 

The billing system fails to adequately collect revenue. It also produces erratic, inaccurate bills due to broken infrastructure. 

Thousands of homeowners and businesses are stuck with malfunctioning meters, resulting in ridiculously high electricity bills.

Van den Heever explained that incompetence is not the only reason for the structural deficit. There is also a significant amount of corruption involved. 

“A large portion of the deficit is corruption. There is corruption in almost every aspect of the city. There is no reasonable explanation for what we are seeing,” he said. 

Van den Heever pointed to the city’s infrastructure backlog as an example of how widespread the corruption is. 

“There is an investment shortfall of R150 billion to R200 billion, a major portion of which belongs to City Power,” Van den Heever said. 

“That backlog should not exist. That money should have been steadily invested in infrastructure maintenance and upgrades. The shortfall means that money has disappeared.”

At City Power, there is a lack of oversight over key officials and operations, resulting in the looting of municipal funds that should be allocated towards infrastructure. 

Van den Heever said there are many examples of unvetted officials operating without any accountability. “These people can get away with murder and there ar eno consequences.”