Godongwana warns municipalities

As many as 47 municipalities could be terminated from the government’s debt relief programme for money owed to Eskom, forcing these cities to pay up or face severe consequences.

This comes after Finance Minister Enoch Godongwana presented the 2025 Budget on Wednesday, 13 March 2025.

In the full Budget Review, the National Treasury provided an update on the municipal debt relief programme.

The National Treasury introduced this initiative in March 2023 to support struggling municipalities by writing off their debt to Eskom in equal tranches over three years.

Over the past few years, municipal debt owed to Eskom has spiralled out of control. It rose from R74.4 billion at the end of March 2024 to R94.8 billion at the end of December 2024.

This places significant strain on Eskom’s finances and operations and is one of the biggest threats to the power utility’s sustainability.

If this problem cannot be addressed and Eskom’s finances become unsustainable, the National Treasury will carry the burden of supporting the utility.

This will likely be done through another government bailout, which it cannot afford without placing significant strain on the already overburdened fiscus.

Therefore, municipal debt owed to Eskom presents a significant threat to not just the utility but also South Africa as a whole.

The municipal debt relief program was seen as a way to address this problem while promoting financial stability in the 71 municipalities currently participating in the initiative.

The programme, therefore, comes with strict conditions that these municipalities must meet, including –

• Meeting a revenue collection rate of at least 85%.
• Implementing cost-reflective tariffs.
• Restricting free basic services to indigent households. 

When this programme was introduced, the National Treasury warned that non-compliance with these conditions may result in municipalities being terminated from the programme.

Other consequences for non-compliant municipalities could include repayment of relief debt and arrears and exclusion from medium-term revenue and expenditure framework grants. 

National Treasury’s support to municipalities

The National Treasury also provides municipalities monthly support, monitors compliance, encourages smart prepaid meter adoption and considers mandatory interventions where needed. 

However, in the 2025 Budget, the National Treasury revealed that many of the 71 municipalities in the municipal debt-relief program failed to meet the required conditions.

It said key issues include persistent non-payment of monthly electricity accounts and an inability to collect the mandated 85% of revenue.

The treasury explained that 47 municipalities have consistently defaulted and already accumulated substantial arrears after receiving debt relief. 

“Despite monthly support from provincial treasuries, these municipalities continue to struggle with financial management, risking removal from the programme,” it said.

Therefore, the National Treasury has issued final warnings to several municipalities, including Mangaung Metro in the Free State, Richtersveld in the Northern Cape and Inxuba Yethemba in the Eastern Cape.

“Termination from the programme will require municipalities to repay their debt and accumulated arrears in full while facing credit control measures from Eskom, such as legal proceedings and the introduction of prepaid bulk electricity systems,” the National Treasury said.

“The National Treasury and provincial treasuries will continue to enforce programme conditions and support municipalities.” 

It said municipalities need to improve their efforts to meet these obligations by implementing cost-reflective tariffs, sustainably managing free basic services, and exploring smart prepaid meters to improve revenue collection and financial sustainability.

However, the treasury added that while challenges persist, some success stories have come out of the programme. 

Eleven municipalities have had one-third of their debt written off after meeting the programme conditions. 

“These successes highlight the programme’s potential to improve municipal financial stability,” the National Treasury said.