Johannesburg faces darkness

Eskom has served a notice of intention to interrupt the power supply to the City of Johannesburg and City Power, which can plunge South Africa’s richest city into darkness.

Eskom said it intends to interrupt the power supply at pre-determined times of day in accordance with the Provision of Promotion of Administrative Justice Act (PAJA).

The City of Johannesburg and City Power currently owe Eskom an amount of R4.9 billion, excluding the current account of a further R1.4 billion.

Eskom said the current account of R1.4 billion will become due and payable at the end of November 2024.

The power utility said it explored all avenues to accommodate the City of Johannesburg but it did not resolve the problem of non-payment.

“The matter has reached a point where Eskom can no longer afford to accommodate the CoJ without putting further financial strain on and harming its own business,” it said.

Eskom said the City of Johannesburg has breached the obligations of the Constitution and the Intergovernmental Relations Framework.

According to this framework, Johannesburg is supposed to cooperate and assist Eskom with fulfilling its mandate of ensuring that citizens have access to affordable electricity.

“The CoJ has breached these obligations by not paying Eskom for the bulk electricity it supplies, making it almost impossible for Eskom to fulfil its mandate,” Eskom said.

“When entities like the CoJ fail to pay Eskom timeously or at all, it forces Eskom to borrow additional money at premiums to fund operational costs.”

Operational costs should be funded by revenue generated from electricity sales and not by borrowings.

“Borrowing money to fund operational cash shortfalls caused by municipalities’ failure to pay Eskom for bulk electricity increases the costs of providing electricity exponentially,” Eskom said.

“The CoJ’s failure to pay is contributing to the growing municipal debt, which, as of September 2024, stands at R90 billion.”

Eskom said the City of Johannesburg has acknowledged its indebtedness to Eskom, but it refuses to pay the full amount of its monthly bill.

“The CoJ alleged, without substantiating their claim, that Eskom is overbilling it on some of its supply points,” Eskom said.

For this reason, the CoJ is applying set-off against the monthly bills raised by Eskom, which is contrary to the electricity supply agreement.

It is also contrary to the agreements reached with its CFO, Rendani Sadiki, the CEO of City Power, Tshifularo Mashava, and the City of Johannesburg Management.

“In more than one meeting, it was agreed that the CoJ would continue to pay whilst the alleged overbilling is investigated. This undertaking has been reneged on,” Eskom said.

Today, Eskom will issue a public notice inviting all interested and affected parties to submit feedback on the issue.

It includes written representations, comments, and submissions on why Eskom should or should not interrupt the electricity supply at the points mentioned in the PAJA notice.

A final decision on whether it will proceed with the interruption will be communicated after the representations received through the PAJA process on 12 December 2024 are reviewed.

Big threat to Eskom

The drastic action contemplated by Eskom comes amidst tremendous challenges regarding municipalities not paying for electricity.

Municipal debt owed to Eskom is on track to hit R200 billion in 2028, growing at an annual rate of R20 billion and threatening the utility’s financial health.

This continued growth may even force the utility to turn to the government for another bailout, CFO Calib Cassim said.

In 2018, debt owed to Eskom stood at a mere R13.6 billion. In the first five months of its financial year, R11 billion has been added to the bill, taking it to R85 billion.

“More concerning from Eskom’s perspective is the growth not just from small municipalities. Half of the R11 billion growth came from metros,” Cassim told Newzroom Afrika.

He said the debt burden is growing by an average of nearly R2 billion a month and is expected to grow by R20 billion each financial year.

If this continues, it will result in debt owed to Eskom reaching R100 billion by March 2025 and R130 billion by March 2026. By the 2028 financial year, Eskom will be owed R200 billion by municipalities.

“If the growth of municipal debt is not addressed, the R254 billion debt relief from the government will effectively be null and void,” Cassim said.

“This does not help Eskom’s financial sustainability going forward. After this debt relief plan, we do not want to rely on the fiscus anymore.”

The government has tried to encourage municipalities to pay back their debt to Eskom by creating financial incentives for them, including a potential debt write-off.

However, only 14 municipalities of the 72 that have applied for debt relief from the government have complied with the conditions outlined by the National Treasury.

Many are not even able to pay Eskom on a current basis, never mind paying back historical debt.

Cassim said Eskom expected teething problems with this programme and explained that it has only been implemented for one year so far.

He admitted that some of the conditions may have to be revisited as they are preventing some municipalities from accessing debt relief.

“From an Eskom perspective, however, you may not be able to pay 100% of your current account, but you can pay at least a portion of what is owed to slow down the growth of the debt burden and prevent it from becoming unsustainable.”