South Africa’s biggest cities are in deep trouble with Eskom
Most of South Africa’s biggest metropolitan municipalities are heavily indebted to Eskom, with the group warning that defaulting on their payments would be catastrophic for the utility and the country.
Speaking to journalists at a media engagement on Thursday, executives at Eskom flagged growing municipal debt as one of the biggest challenges facing the company at present.
This debt has now ballooned to R63 billion and is growing every month.
Worryingly, almost all of the eight metropolitan municipalities are falling behind on their payments – only a few exceptions, like the City of Cape Town and Ethekwini, are up-to-date in paying their bills.
Some of the more notable problem metros are the City of Tshwane, which has missed debt payments at least three times over the past few years, resulting in Eskom having to approach the courts to get the money owed.
According to Eskom’s group executive for distribution, Monde Bala, Tshwane’s bills are now up to R1.6 billion a month, representing a significant financial problem for Eskom when it is not paid.
Other metros are facing similar issues, with debt mounting in Mangaung, the City of Joburg, and even the City of Ekurhuleni is starting to show signs of distress, Bala said.
If more metros default on their payments, this will result in a significant financial crisis for Eskom, which, in turn, would impact the entire country, given the company’s already widely known money issues.
Carrot and stick
According to Bala, municipal debt presents a massive problem for the company, with little room to deal with it effectively.
In the past, the utility has tried to cut off services to municipalities that have not paid their bills – however, the courts have shot down this approach.
A newer approach has been to give municipalities an out to their debt problems by optioning a three-year debt relief programme where they can have their debt written off provided they follow strict conditions.
However, this also faces issues – the programme is voluntary, and Eskom cannot force defaulting municipalities to participate. So far, only a handful of municipalities have applied.
These incentives to get municipalities to pay up form part of Eskom’s “carrot and stick” approach to dealing with municipal debt.
The next step, Bala said, is to apply the “stick” part of the equation.
For this, he said the power utility is looking at different options. As with the Tshwane case, it is possible for Eskom to approach mediators, even the courts, to get cities to pay up.
However, the group is also looking at other methods, such as cancelling distribution licences or taking over parts of municipal power supply processes.
The latter would involve Eskom “supporting” municipalities by handling the management of their electricity supply, including billing. In such a scenario, Eskom would bill customers directly at the relevant municipal rates, take the money owed to it, and pass any excess back to the municipality.
Municipalities draw a significant part of their revenue from power sales, so this move could prove devastating. However, as Bala pointed out, not paying Eskom its dues could lead to even greater devastation for the country as a whole.
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