Eskom’s R63 billion headache

South Africa’s municipalities owe Eskom R63 billion, up from R58.5 billion at the end of March and R44.8 billion in 2022. 

This was revealed by acting Eskom CEO Calib Cassim in a presentation before Parliament’s Portfolio Committee on Public Enterprises earlier this month. 

Eskom initially reported that municipal debt has continued to escalate from already unsustainably high levels in its results presentation for the 2023 financial year, which ended in March. 

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. 

Municipal debt has continued to increase since March, reaching R63 billion as of the end of October, Cassim said. 

Cassim highlighted that the growth of the debt has slowed to below the levels seen during the 2023 financial year of over R1 billion a month. 

Non-payment from municipalities has a significant impact on Eskom’s operations as it inhibits the utility’s ability to invest in the maintenance of its plants and expand the grid. 

Cassim added that the non-payment from municipalities also affects the profitability of the utility. 

Eskom predicted that it will post a a R23.2 billion loss in the current financial year versus a record loss of R23.9 billion in the 2023 financial year. 

However, management at the utility expects its financials to turn around significantly in the coming years as municipal debt collection improves alongside a reduction in load-shedding and the use of open-cycle gas turbines. 

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, Electricity Minister Kgosientsho 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.