Eskom’s R95 billion crisis

South African municipalities owe Eskom R95.4 billion, with the amount set to continue growing as the National Treasury’s debt relief programme fails to gain traction.

This was revealed by the utility at the presentation of its annual financial statements for the 2023/24 financial year end. 

Eskom reported a record R55 billion after-tax loss for the financial year ended 31 March 2024, primarily due to an accounting adjustment and increased diesel expenditure. 

The once-off adjustment was to derecognise a deferred tax asset of R36.6 billion in terms of IFRS Accounting Standards stemming from the transfer of Eskom’s Transmission Division to the National Transmission Company South Africa (NTCSA). 

On a positive note, the utility’s operating profit skyrocketed by 288% to R10.2 billion. It must be noted that this excludes Eskom’s debt-servicing costs of R38.4 billion for the year among other costs.

This translated into a reduction in Eskom’s loss per tax by 26% to R25.47 billion from R34.6 billion in the previous financial year.

Eskom’s management team is extremely optimistic about the company’s financial future due to the utility’s improved operational performance in the 2025 financial year. 

The utility has managed to keep load-shedding at bay since the end of March, which CFO Calib Cassim said should translate into a much improved financial performance in the current period. 

So far, Eskom has realised savings of over R10 billion from the reduced use of diesel to run its open-cycle gas turbines (OCGTs) to stave off load-shedding in the first few months of the 2025 financial year compared to the previous period. 

Eskom’s board setting a target of R16.2 billion in cost-saving measures for the 2025 financial year. 

The plan focuses on ‘quick wins’, such as improving the utility’s overall efficiency and minimising the impact of high-cost initiatives like running OCGTs. 

It also aims to enhance the collection of municipal debt, reduce theft and find new revenue opportunities. 

If these initiatives can continue into the next financial year, Eskom estimates it could return to profitability in FY2026 with a profit of around R12 billion. The utility is also targeting a profit margin of around 10%. 

The major threat to this is the amount of municipal debt owed to Eskom and the fact that it continues growing, despite interventions by the National Treasury. 

CEO Dan Marokane and Cassim were clear that the municipal debt relief programme was not delivering the intended results.

Cassim said the growing municipal debt not only threatens the separation of Eskom’s Distribution Division but the financial health of the entire company. 

The graph below shows the rapid growth of municipal debt owed to Eskom and the declining payment levels of municipalities. 

Co-operative governance and traditional affairs minister Velenkosini Hlabisa gave more detail regarding municipal debt in a written reply to a parliamentary question by ActionSA MP Alan Beesley on 18 December. 

According to data from Hlabisa’s department, which runs up to 17 December while Eskom’s only covers up to November 2024, municipalities and metros owe the utility R109.4 billion. 

Hlabisa revealed that of this debt, R15.6 billion was current, R8.7 billion was outstanding for 31-60 days, R8 billion for 61-90 days and R77 billion for 90 days and more. 

He also gave a municipal and metropolitan breakdown of the debt, showing that Gauteng’s municipalities owe the most at R29.4 billion. 

Eastern Cape municipalities owe R5.4 billion, the Free State R25 billion, KwaZulu-Natal R4.9 billion, Limpopo R2 billion, Mpumalanga R24.7 billion, the North West R8.2 billion, the Northern Cape R5.5 billion and the Western Cape R2.3 billion. 

Eskom CFO Calib Cassim previously said that municipal debt owed to Eskom is on track to hit R200 billion in 2028 and is growing at an annual rate of R20 billion. 

This continued growth may even force the utility to turn to the government for another bailout as it will effectively render the latest R254 billion bailout null and void, Cassim said. 

In 2018, debt owed to Eskom stood at a mere R13.6 billion. In the first five months of its current financial year, over R12 billion has been added to the bill. 

“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. 

The table below shows the ten worst offenders in terms of failing to pay Eskom and the amount of debt owed to the municipality they have racked up so far.