Big changes planned for municipal electricity in South Africa

The Department of Public Works and Infrastructure says that municipal electricity provision needs to be overhauled to ensure that local authorities can be held accountable for their failure to pay bills and to secure necessary generation capacity for residents.

The department published the phase 2 documentation of its National Infrastructure Plan 2050 this past week, detailing the path the government will follow in realising its major infrastructure projects over the next 30 years.

One of the biggest pain points faced with development in the country is municipalities’ struggle with collecting revenue that is owed to them from customers, the department said.

This leads to municipalities being unable to pay their creditors, which in turn impacts their ability to provide electricity and water for houses and residents, leading to service delivery failures, it said.

At the end of 2021, customers owed municipalities R232 billion, representing 12 months of revenue from these services. More than three-quarters of this debt is older than 90 days, making it challenging to recover, the department said.

Meanwhile, municipalities owed their creditors R76 billion over the same period – R30 billion more than customers owed them (counting only customer debt less than 90 days).

“The debt situation is becoming more serious each successive year. For example, municipal debt owed to Eskom increased 250% from 2017 to 2021,” it said. At the same time, customer debt has been increasing while assets and services have deteriorated.

The department attributed much of the decline to weak governance and inadequate management and technical capabilities. This has hit electricity and water provision especially hard – something which has been evidenced in the current water and electricity crises facing many municipalities today.

Electricity changes

Electricity, in particular, has hit residents hard. On top of Eskom-instituted load shedding leaving millions of South Africans in the dark for hours at a time, residents have been hit with above-inflation electricity tariff hikes. Eskom has applied for a massive increase in 2023 – of 32% – which will invariably feed on to municipal rates.

Municipalities scored a victory in the High Court over the last week, with the courts overturning energy regulator Nersa’s methodology for calculating municipal increases, but the DPWI believes more needs to be done.

The phase 2 plan includes a major overhaul of how municipalities conduct their electricity business, calling for a new licencing regime to be put into place.

The department said that a municipality’s ability to act as a distributor should be conditional and contingent on it having an operating licence with material consequences attached. “The conditions for an electricity distributor to obtain and retain an operating licence will be clarified, with material consequences such as loss of a licence should conditions not be met,” it said.

“If a municipality loses its licence to operate the electricity distribution network, it will then need to contract with a licenced operator.”

The department said that licence conditions will include strong financial transparency and technical performance reporting requirements.

This will result in a consolidation of the electricity distribution business over time through the creation of dedicated electricity distribution companies serving multiple municipalities.

“The process will be accelerated through the use of financial incentives linking access to financing for infrastructure upgrades to performance,” the department said.

It said that over the next three years, a dedicated professional team will be created within Nersa to drive performance improvements and reforms of the municipal electricity business through implementing an effective licencing regime.

The operating licence is expected to be implemented in the 2023/24 financial year, with the first cases of retraction and transfer of licences from municipalities to other entities in the same year.

In the meantime, the department expects five dedicated electricity distribution companies to be established by 2025, performing within acceptable standards of financial performance, reliability and asset management and investment.

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