70 municipalities to get Eskom debt bailouts

The National Treasury has approved 70 out of 72 municipal applications for debt relief on their arrears debt to Eskom. 

In the Medium Term Budget Policy Statement (MTBPS) in November last year, Finance Minister Enoch Godongwana introduced support to relieve municipalities of the debt they owe to Eskom. 

The minister said it would be counterproductive to try and address the problems at Eskom without dealing with chronic municipal non-payment and historical debt owed to the utility. 

Eskom revealed in its annual results in October 2023 that municipal debt owed to it, including interest, increased by R13.7 billion to R58.5 billion. 

This problem is compounded by the payment rates from municipalities continuing to decrease to 76%.

Therefore, the municipal debt relief was introduced, whereby, on application, the debt owed to Eskom up to 31 March 2023 will be written off over three years in equal annual tranches. 

This is provided the municipality complies with set conditions, such as enforcing strict credit controls, paying their monthly electricity accounts and enhancing revenue collection. 

The Finance Minister revealed yesterday that, by December 2023, 72 applications had been submitted.

These applications for debt relief total R56.7 billion or 96.9% of the total municipal debt owed to Eskom at the end of March 2023.

As of January 2024, 70 applications totalling R55.2 billion had been approved.

Citadel chief economist Maarten Ackerman previously said the government’s plan to write off municipal debt to Eskom sets a negative precedent and sends the wrong message to South Africa’s struggling state-owned enterprises (SOEs).

“Writing off municipal debt is also a serious risk to the market and sets a negative precedent,” he said. 

“The state of our municipal audits and service delivery has been deteriorating, and the grace now extended to our defaulting municipalities also sends the wrong message to other indebted SOEs.” 

In the MTBPS last year, the Finance Minister took a hard stance on bailouts for SOEs, tightening the conditions on Eskom’s debt-relief package and denying Transnet’s request for a bailout.

In the 2024 Budget, the minister did not announce any additional bailouts for South Africa’s struggling SOEs.

However, at the end of 2023, Transnet was granted a guarantee of R47 billion to meet its borrowing requirements. 

“Use of the guarantee is conditional on the implementation of a comprehensive turnaround plan recently approved by the board of directors,” the National Treasury said. 

“Government is working closely with Transnet to ensure it implements changes needed to improve operational efficiency and achieve financial sustainability.”

In addition, the Treasury announced yesterday that Eskom will lose a portion of the debt relief it was previously allocated after it failed to meet the attached conditions.

The government will transfer R76 billion and R64.2 billion in the current and next fiscal year, respectively, to Eskom, according to the Budget Review published by the Treasury on Wednesday.

“Transfers in each of these years are R2 billion lower than projected as a result of the entity’s failure to conclude disposal of the Eskom Finance Company, as stipulated in the debt-relief conditions,” it said.

The decision shows the Treasury is holding a firm line on only providing relief to debt-stricken state companies if they meet strict criteria, which will likely be extended to the conditions of the municipal debt relief packages.