Eskom’s R58 billion municipal debt problem

Municipal debt owed to Eskom, including interest, increased by R13.7 billion to R58.5 billion, while payment rates from municipalities have continued to decrease to 76%. 

This was revealed in Eskom’s results presentation for the 2023 financial year, for which the utility reported a R23.9 billion loss. 

Eskom said that municipal debt has continued to escalate from already unsustainably high levels. 

In 2018, invoiced municipal debt totalled a mere R13.6 billion. This has grown to R58.5 billion at the end of the 2023 financial year, a 31% increase from the year before. 

The payment levels of municipalities continued to deteriorate, declining by 2% in the 2023 financial year to 76%. 

The top 20 defaulting municipalities pay less than half of their invoiced amount, with a 46% payment level. 

Electricity Minister Kgosientsho Ramokgopa has previously 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 the impact non-payment has on Eskom’s operations as municipalities’ failure to pay inhibits the utility’s ability to invest in the maintenance of its plants and expanding the grid. 

The Minister added that if the debt owed by municipalities remains unaddressed, it will increase exponentially and place an unsustainable burden on Eskom.

However, there have been some positive developments with regard to municipal debt owed to Eskom, as the debt owed by Soweto halved in the 2023 financial year to R2.3 billion. 

Moreover, 28 municipalities received approval for the municipal debt relief programme offered by the National Treasury. 

The debt of these 28 municipalities equated to R26.7 billion at the end of the 2023 financial year, or 46% of the total debt owed by municipalities. 

Eskom expects to experience a cash flow benefit from these municipalities as they must settle their current accounts for the debt to be written off by the Treasury. 

Municipalities that want to qualify for debt relief must apply and meet certain conditions, such as staying on track with their current account payments and rolling out smart meters. 

Conditions for debt relief from the Treasury include:

• They must stay on track with their current account payments for the next 12 months.
• They must roll out smart meters to improve the efficiency of their electricity distribution networks.
• They must remove illegal connections to their electricity networks.

In August, Ramokgopa revealed that only 11 of the 28 municipalities have honoured their agreement with the National Treasury, and seven have been partially honoured. 

Thus, the cash flow benefit will be much smaller than expected.