South African municipalities are severely cash-strapped and in a “fight for survival” that is exacerbated by load-shedding.
This is the view of National Rationalised Specifications Association of South Africa chairman Vally Padayachee.
Padayachee told SABC News that South African municipalities are Eskom’s largest customer.
Municipalities consume about 45% to 47% of Eskom’s electricity, making it a large chunk of a municipality’s sales cost.
Municipalities buy electricity from Eskom and sell it to the citizens in their jurisdictions.
“This means load-shedding from 2008, which has gotten worse and worse, has had a significant impact on the municipalities’ business,” Padayachee explained.
“Like Eskom, if the municipalities don’t sell electricity, they don’t execute on the constitutional mandate of service delivery.”
“More importantly, they are unable to collect much-needed revenues for their survival and to service their customers. So much so that municipalities are virtually a reseller of Eskom.”
He said the constant and erratic stages of load-shedding have exacerbated this problem.
Load-shedding means the municipalities do not have electricity at the peaking times when they make money on the surplus they sell, he explained.
Padayachee added that most municipalities in South Africa, including some of the major metros, are significantly cash-trapped at the moment.
“Municipalities, the majority of them, are significantly cash-strapped – fighting for survival,” he said.
For the majority of municipalities, between 75% to 90% of their income now goes towards purchasing electricity from Eskom, given the utility’s high cost of sales.
This means these municipalities only have around 25% to 10% of their operating budget left to run the municipality, making it virtually impossible to run effectively.
This has also meant that municipalities are in severe debt to Eskom.
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.
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.”
However, Padayachee argued that it is not the municipalities’ fault that they cannot pay these debts.
“It’s the operating model of the municipalities that’s no longer functional,” he said.
“It worked well in the past decades, but it no longer works well and the government has to seriously step in to save the municipalities because they do have a constitutional mandate of service delivery.”