Finance Minister wants to write off Soweto’s R5 billion Eskom debt
Finance Minister Enoch Godongwana said the government would wipe out Soweto’s Eskom debt if they complied with certain conditions.
Last month, Deputy President Paul Mashatile said the government is proposing that Eskom writes off some of the municipalities’ debts.
Citing the latest data, he said by the end of 2022, municipalities owed Eskom R56.3 billion, and this debt continues to rise.
“This relief is aimed at correcting underlying behaviour and operational practices in defaulting municipalities,” Mashatile said.
Soweto is the worst area in the country regarding non-payment for electricity and Eskom debt, and there is a lot of focus on improving the situation.
In January, Gauteng premier Panyaza Lesufi proposed writing off Soweto’s electricity debt to resolve the area’s electricity woes.
“Until we remove the electricity debt in Soweto, we are not going to resolve the electricity problem in Soweto,” Lesufi said.
He argued that if the government takes over part of Eskom’s R400 billion debt, as planned, Eskom must remove the debt from communities like Soweto.
President Cyril Ramaphosa also said writing off Soweto’s Eskom debt is an option as it is what many people in the former Johannesburg township want.
However, he admitted that non-paying municipalities partially caused Eskom’s financial crisis and that people should pay for services from the state.
However, there are concerns that it sends a message to municipalities and households that non-payment is not a problem and the debt will always be written off.
In 2021, for example, Soweto’s debt was reduced from R12.8 billion to R7.5 billion because the power utility wrote off R5.3 billion.
Eskom explained that the reduction in Soweto debt was mainly due to the write-off of prescribed debt of R5.3 billion and the write-back of non-compliant interest of R3.3 billion.
It did little to increase the payment from Soweto residents for electricity, which is why the newly proposed debt write-off is controversial.
However, the finance minister is confident it is a positive step. He said Soweto’s debt would be wiped out if the Johannesburg municipality complies with Eskom’s conditions.
The debt write-off is an exchange programme with an obligation on residents whose debt is removed to install prepaid meters.
“You have to go to the municipality and buy a prepaid meter and install it in your house,” Godongwana explained.
After the prepaid meter is installed, the debt on the account will be removed.
Municipal debt relief conditions
Municipal debt relief includes 14 conditions for municipalities relating to sustainable finances and operational and technical best practices.
Eskom can only write off one-third of the municipal Eskom arrear debt, interest and penalties if the municipality complies with all the conditions for municipalities for 12 consecutive months.
It means that a municipality must comply with all the conditions for 36 months for a full debt write-off.
Some of the conditions for municipalities are:
- Maintain a minimum average collection and use electricity and water as collection tools.
- If the municipality collects less than 80% of its revenue during any quarter, it must demonstrate that the failure relates to Eskom-supplied areas, technical engineering inability to restrict water supply, or Eskom SDA refusal.
- It must ring-fence all electricity, water, and sanitation revenue collected. It must pay the Eskom current account and the bulk water current account before any other monthly payments.
- Progressively install smart prepaid meters. All new connections must be smart prepaid.
- There is a 3-year restriction on any municipal borrowing.
- Phase-in cost-reflective tariffs.
- Ensure spending fully aligns with realistically anticipated revenue collection.
Only municipalities that owed Eskom money as of 31 March 2023 fall within the scope of municipal debt relief.