Eskom heading for serious trouble

Once South Africa has a competitive electricity market where Eskom is not the only supplier of power, the state-owned utility may be left with only non-paying customers.

While there is still a long way to go in setting this market up for multiple players to compete, such as the buildout of South Africa’s transmission grid, this presents a real risk to Eskom’s financial sustainability.

This is a warning from Allan Gray portfolio manager Sandy McGregor and ESG analyst Raine Adams, who discussed Eskom’s future in a recent podcast from the asset manager.

McGregor explained that the opening up of South Africa’s electricity market to more players will introduce the normal supply and demand dynamics seen in any other market where there are buyers and sellers.

Considering the current problems with electricity pricing in South Africa, where the price of electricity has jumped by over 600% since 2009, this could be a problem for Eskom.

“If something becomes expensive, people don’t buy it. It’s as simple as that,” McGregor said.

He explained that it is still unclear what the electricity market will look like, and while many assume there will be an abundance of power produced and sold at low rates, this may not be the case.

Adams agreed with this assessment, saying large energy users, in particular, will be among the most affected.

In the coming years, she said South Africa will likely see these users, like mines and smelters, enter into bilateral and long-term agreements with independent power producers (IPPs).

While these agreements may not be feasible for smaller users, larger consumers can assume the risk of long-term agreements with new producers.

Adams said this is positive for the electricity market as a whole, as it will lead to greater pricing transparency and increased competition.

However, for Eskom, this may not be a positive development, as it could lose many of its larger, and therefore more profitable, customers.

“Large energy users and paying customers are moving towards IPPs and bilateral agreements with electricity traders, so Eskom is going to be more and more saddled with non-paying customers,” she explained.

“I think it’s a big worry for Eskom down the line and certainly one they are aware of – electricity sales in the future and the quality of customers.”

Eskom’s financial future

Adams explained that being left with only non-paying customers could harm Eskom’s finances, and is something the utility is already struggling with.

Currently, one of the biggest threats to Eskom’s financial sustainability is non-payment by municipalities, which has gone from a debt of R2.4 billion 10 years ago to R100 billion today.

In its latest financial results, Eskom warned that, if not addressed, this debt could balloon to R358 billion by 2031.

The utility said this poses a threat to its financial sustainability and could unwind the benefits of its R254 billion Debt Relief Programme from the National Treasury.

At the same time, the utility has also identified its unsustainable tariff path as a notable risk, which would be exacerbated by losing many of its paying customers to IPPs.

Already, Eskom’s two main sources of revenue – tariffs and sales – are under significant pressure.

Eskom’s revenue growth of 15.84% in the 2025 financial year was driven mainly by tariff increases, with the utility’s sales volumes remaining flat.

The utility attributed this to the growing number of its customers going off-grid and to general economic conditions.

In its projections for the upcoming years, Eskom said it expects only single-digit tariff increases, which could put further pressure on its revenue, though they may help sales volumes grow.

To address the problem of municipal debt, Eskom has teamed up with the National Treasury to put in place distribution agency agreements (DAAs) with some defaulting municipalities.

Under these agreements, the licence to distribute electricity remains with the municipality, but it is required to hire an agent, such as Eskom, to collect revenue from customers.

Eskom has said it is hopeful that these DAAs will support municipalities in achieving sustainable local service delivery, while also ensuring the utility’s financial stability through improved billing and revenue collection.

However, Adams warned that this solution may not go as planned, as it remains unclear whether these agreements will be accepted by the municipalities involved.

“It’s not clear that this will be accepted wholeheartedly. I think some of the municipalities are quite opposed to that and see it as an overreach,” she said.