Big mistake which cost Eskom billions

Eskom revealed that not addressing the decade-old problem of municipalities not paying their bills when it first started is costing it billions and that there is no viable solution on the cards.

The municipal debt owed to Eskom continues to grow, reaching R63.2 billion at the end of August. The top 20 offenders owe R48.9 billion – 77% of the total.

More than half of the 257 municipalities in the country have defaulted on their Eskom bills.

Current executives at the company point to not clamping down on defaulting municipalities when the problem started as the source of the problem. 

Electricity Minister Kgosientsho Ramokgopa said he is deeply concerned about the financial health of many municipalities that owe Eskom billions. 

“The finances of municipalities are very illiquid. Some are insolvent and are not raising sufficient revenue to meet their operational activities.”

Ramokgopa lamented how this impacts Eskom’s operations as it inhibits the utility’s ability to invest in maintaining its plants and expanding the grid. 

Acting Eskom CEO Calib Cassim told BusinessDay the escalation in municipal debt is “concerning” and will “show in Eskom’s financial results”.

In May, the Treasury launched an initiative to allow municipalities to have their Eskom debt written off systematically over three years. 

To qualify, municipalities must comply with 14 financial management and other conditions, including keeping up with current account payments to Eskom.

The Treasury said it had received 30 applications, of which 23 have been approved and 7 are pending approval.

The approved municipalities represent R17 billion of the R63 billion. 

Eskom’s distribution group executive, Monde Bala, said many municipalities face systemic problems that make it impossible for them to pay their debts. 

Bala said it is not possible to force municipalities to participate in the Treasury’s debt relief programme, even though it comes with an incentive of a complete write-off of accumulated debt.

He also emphasised that this has been a decade-long struggle, with no viable solution implemented by Eskom or the government. 

“We can impose penalties for late payment, but when a municipality is not paying its bills, the penalty is of little effect,” he said.

“We are in a situation where the debt keeps growing because we did not deal with the problem when it first started in 2012/13.”

Eskom was unaware at the time that there were fundamental problems at municipalities that made them unable to pay their Eskom debts even if they wanted to. 

One measure Eskom would consider to deal with indebted municipalities is stronger enforcement of the distribution licence conditions. “If they don’t pay, they run the risk of losing their licences.”

Another solution Eskom could consider is to take over the electricity supply from those municipalities that are unable to repay their debt and service their current accounts.