Eskom’s biggest threat is something it can’t control

The steady rise in municipal debt owed to Eskom has become an existential threat to the utility, with the total reaching R100 billion. 

Worryingly, the growth in municipal debt owed to the utility has not slowed despite efforts from Eskom and the National Treasury to find a solution. 

While the bulk of the debt was owed by a relatively small number of municipalities, larger entities and even metros are falling into the non-paying category. 

The continued growth threatens Eskom’s finances and may effectively render the R254 billion relief package from the Treasury null and void. 

This is feedback from Electricity Minister Kgosientsho Ramokgopa, who outlined the threat nonpayment poses to the utility in a recent interview. 

Ramokgopa said that municipal debt is fast becoming the main concern of the Electricity Ministry, as it threatens to undo the progress made in turning around Eskom’s operational and financial performance. 

Eskom is expected to post a mid-year profit for the first time in years, with the utility’s operational improvements translating into a much better financial performance. 

Municipal debt may undo all this work, as the total owed to Eskom has crossed R100 billion and is expected to continue growing strongly. 

“The amount is over R100 billion owed to Eskom, which is massive. This problem is now structural and can no longer be addressed by tackling issues at a few municipalities,” Ramokgopa told Newzroom Afrika. 

“The fundamental problem is structural. The structural problem is the price of electricity, which has risen by 600% in the past decade.” 

As a result of this rise, many South Africans cannot afford to purchase electricity through legitimate means, reducing revenue for municipalities, which can then not pay Eskom the full amount. 

“We have to find a way to make electricity more affordable to get South Africans to pay for it, without threatening the financial viability of Eskom and municipalities,” Ramokgopa said. 

This is a tricky balance to strike, with Eskom looking to recover lost revenue from below-cost electricity tariffs in the past and trying to manage the utility’s own financial obligations. 

Eskom CFO Calib Cassim said the rise in municipal debt threatens the utility’s financial turnaround, potentially rendering support from the National Treasury null and void. 

“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.”

Eskom expects municipal debt to grow to R200 billion by the 2028 financial year if nothing is done to address the rise in non-payment for services. 

Collapse of municipalities

A major challenge in addressing this issue is the ongoing collapse of service delivery from municipalities, which results in electricity from Eskom not reaching the end user in some cases. 

South Africa’s electricity distribution infrastructure has deteriorated rapidly in recent years as municipalities fail to invest in maintaining equipment and expanding capacity to cope with increased demand. 

This results in localised outages and load reduction as the infrastructure simply cannot handle the demand placed on it. 

As a result, municipalities lose out on sales and cannot pay Eskom for the electricity it has purchased from the utility. 

This is compounded by mismanagement at higher levels within municipalities, with many of them lacking the skills to adequately manage their finances. 

“This really has to do with the ills that have bedevilled municipalities. This includes the loss of skills, inability to plan, and a lack of technical expertise,” Ramokgopa said. 

Ramokgopa said that the government is looking at ways to address this, with interventions bearing little fruit so far. 

“We need to get everything to work together, from improved infrastructure, improved skills, proper management, and create a culture of payment.” 

“It is a matter of affordability and technical skills at municipalities. This combination, in a stagnant economy, poses serious challenges.” 

Eskom has been clear that the intervention from the National Treasury has not been as effective as expected in bringing municipal debt under control. 

The government has tried to encourage municipalities to pay back their debt to Eskom by creating financial incentives, 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.