Eskom’s unsustainable municipal debt surges to R70 billion

Debt owed by municipalities to Eskom has continued to grow in the first half of the utility’s 2024 financial year to R70 billion from R58.5 billion at the end of March. 

This was revealed by Eskom in the utility’s interim results for the first six months of the financial year to the end of September. 

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 R70 billion at the end of September 2023, a 32% 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.

In its results presentation, Eskom said it is critical for its financial viability that the National Treasury implements the municipal debt relief programme.

The utility expects the programme to improve payment levels and the settlement of current accounts by municipalities. 

Applications for municipalities to enter the debt relief programme closed at the end of October. 52 municipalities have received approval from the National Treasury. 

These municipalities account for R50.2 billion (86%) of the debt owed to Eskom. 

A further 20 municipalities have applied for relief and are awaiting approval from the Treasury. No write-offs have been processed as yet, as municipalities must comply with the conditions for a full year before Eskom begins to write off their debt. 

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.