The next crisis threatening to collapse Eskom
Energy minister Kgosientsho Ramokgopa has warned that the rising levels of municipal debt and “perennial under-investment” in distribution infrastructure by municipalities is the next big threat and risk Eskom faces in South Africa.
To date, municipalities owe Eskom R78 billion. If left unaddressed, this could lead to a debt bill of R3.1 trillion by 2050 – which would collapse Eskom, he said.
But a huge part of this problem is outside of Eskom’s control, with municipalities dropping the ball hard when it comes to maintaining their infrastructure, leaving households and businesses to ultimately pay the price.
“That is why this is the most urgent task that is confronting us,” he said.
Addressing the media in his first briefing as minister of the newly formed Department of Electricity and Energy, Ramokgopa welcomed Eskom’s milestone this past week of suspending load shedding for 100 days.
He said that the national power utility’s work to turn its operations around has helped it reach the point where it can adequately meet demand.
However, despite these improvements, there are many areas in the country where people are still struggling to get a consistent electricity supply, with major metros like Joburg subject to load reduction.
In the past, Eskom and load shedding could be blamed for these woes, he said, but now it has become evident that the next big threat and risk that has materialised sits at a more local level.
“We have seen that there is little to no investment that has been made (by municipalities) in the replenishing maintenance, upkeep, and protection and modernisation of electricity infrastructure,” he said.
As a result, municipal infrastructure is under severe strain, leading to frequent outages and processes like load reduction, where municipalities are unable to meet demand, and households are left with no power for large parts of the day.
“This has nothing to do with Eskom but has everything to do with municipalities, and this is the crisis that is facing us,” the minister said.
Complex problem
The minister said that this new crisis is a complex problem because it has many different layers and players—including the Constitutional separation of powers which leaves the distribution as a competency of the municipalities.
However, there are also factors at play like “exponential price increases”, which exacerbate problems like the non-payment of municipal bills, which then feed into other crises like Eskom’s mountain of money owed and the rise of illicit economies and illegal connections.
Rampgkopa also warned that while the “centre of gravity of the challenges is in the metros”, it is likely to spread to other parts of the country, especially where Eskom is not present.
He flagged five main problems that need to be addressed urgently:
- Non-ring-fenced municipal budget: Money collected is put into the budget, and capital allocations are given to other services at the expense of electricity infrastructure. While the minister is not suggesting a fully ring-fenced system, he said some form of percentile-based ring-fencing needs to happen.
- Poor revenue management and poor payment culture: Municipalities do not do complete billing, so there is no scope of who uses or pays for what, resulting in poor planning, poor credit control and poor revenue control. Planning is based on estimations, which often fail to reflect reality.
- Not investing in infrastructure: This has become evident in the major metros. However, he said that Joburg and Tshwane are just “the tip of the iceberg,” and other municipalities are sure to follow.
- Exponential rise in tariffs: Electricity pricing has become unaffordable and needs a more enduring solution.
- Unstable distribution business: Given these shortcomings, issues of theft, illegal connections, and illicit ecosystems have risen up – this needs urgent attention.
Electricity prices
Ramokgopa said that electricity tariffs are increasing exponentially, and people can no longer afford electricity.
He said the rate at which Eskom tariffs and municipal tariffs are increasing is unsustainable, describing it as “an untenable situation”.
“We are getting to a situation where your lower-to middle class – even your public servants – can no longer afford the cost of electricity in this country,” he said.
“So as we speak now, it’s an affordability question; over a period of time, if you don’t address it, it’s a national security problem. Because people are ‘not going to just fold their arms’.”
Higher electricity prices also have inflationary pressure, which impacts the cost of goods and the cost of doing business.
“This is a problem that is likely to become acute over a period of time, and needs to be addressed urgently,” he said.
The rising cost of electricity will also have a knock-on effect on municipal revenue. As power becomes more unaffordable, households are forced to choose between basic necessities – and if the choice is between “more bread or more power”, the answer is clear.
“More and more people will lose access to electricity. Not because it isn’t available…it is as a result of prohibitive pricing,” Ramokgopa said.
“In numbers, year to date, collectively, municipalities are owing Eskom R78 billion. And I can tell you, a lot of this cannot be recovered. There is no possibility under the sun that we will collect that R78 billion.
“A lot of it is over three months, six months being owed. People are not sitting on this money.
“But this is a problem for Eskom. Eskom needs this money so it can reinvest it back into its own infrastructure. Municipalities have to pay that money – but on objective grounds, they simply do not have the means to.
“If we don’t resolve this problem, our projection is that, at the current rate, at 2050 Eskom will be owed R3.1 trillion. Eskom will collapse,” he said.
The minister said that he has already had discussions with the minister of Cooperative Governance on a plan to deal with municipal debt, though he did not want to jump the gun and announce anything concrete.
However, he said it is imperative that those who can afford to pay do so, and called on municipalities to pay their debts by forcing customers to pay.
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