From R2.6 billion to R90 billion in 10 years
Eskom’s municipal debt has exploded over the last decade and now poses an existential threat to the power utility.
On 31 March 2014, Eskom reported that the total municipal arrear debt was R2.6 billion, up from R1.2 billion a year earlier.
At that stage, it was so concerning that Eskom held numerous meetings with the Department of Public Enterprises (DPE) and National Treasury about the issue.
Eskom wanted to work with these departments to find sustainable ways to address municipal debt and implement longer-term interventions.
However, these discussions did not solve the problem. Municipal arrear debt increased from R2.6 billion on 31 March 2014 to R5 billion on 31 March 2015 – and kept going.
By 31 March 2020, total municipal arrear debt amounted to R28 billion, up from R19.9 billion a year earlier.
Despite numerous discussions and interventions, Eskom and the government could not stem the tide.
Municipal debt continued to escalate to unsustainably high levels, amounting to R58.5 billion on 31 March 2023, up from R44.8 billion a year earlier.
Eskom CFO Calib Cassim recently revealed that municipal debt has ballooned to R85 billion since March 2023, and is now almost at R90 billion, threatening the company’s financial sustainability.
He said the growing municipal debt burden may force the utility to turn to the government for another bailout.
Eskom’s debt burden is growing by an average of nearly R2 billion a month and is expected to grow by R20 billion each financial year.
If this continues, it will result in debt owed to Eskom reaching R100 billion by March 2025 and R130 billion by March 2026.
Municipalities will owe Eskom R200 billion by the 2028 financial year. The company will not be able to service this debt.
“More concerning from Eskom’s perspective is the growth not just from small municipalities. Half of the R11 billion growth came from metros,” Cassim said.
“If the growth of municipal debt is not addressed, the R254 billion debt relief from the government will effectively be null and void.”
“This does not help Eskom’s financial sustainability going forward. After this debt relief plan, we no longer want to rely on the fiscus.”
The government has created financial incentives for municipalities to pay their debt. However, despite potential debt write-offs, it had little effect.
Only 14 of the 72 municipalities that have applied for debt relief from the government have complied with the conditions outlined by the National Treasury.
Even more concerning is that many of these municipalities cannot even pay Eskom for their current electricity usage.
This means that expecting these municipalities to pay their debt is unrealistic. They have become too comfortable with non-payment and a lack of consequences.
Eskom is trying to crack down on non-payment. It has recently threatened the City of Johannesburg and City Power with power cuts unless they pay.
Eskom said it intends to interrupt the power supply at pre-determined times of day per the Provision of Promotion of Administrative Justice Act (PAJA).
The City of Johannesburg and City Power currently owe Eskom R4.9 billion, excluding the current account of a further R1.4 billion.
The power utility said it explored all avenues to accommodate the City of Johannesburg, but it did not resolve the problem of non-payment.
“The matter has reached a point where Eskom can no longer afford to accommodate the CoJ without putting further financial strain on and harming its own business,” it said.
Eskom said the City of Johannesburg has acknowledged its indebtedness to Eskom, but it refuses to pay the full amount of its monthly bill.
“The CoJ alleged, without substantiating their claim, that Eskom is overbilling it on some of its supply points,” Eskom said.
For this reason, the CoJ is applying set-off against the monthly bills raised by Eskom, which is contrary to the electricity supply agreement.
It is also contrary to the agreements reached with its CFO, Rendani Sadiki, the CEO of City Power, Tshifularo Mashava, and the City of Johannesburg Management.
However, the City of Johannesburg and City Power are digging in their heels, calling Eskom’s plan “unjust, counterproductive, and potentially harmful”.
City Power CFO Tebogo Moraka urged Eskom to retract its public notice and engage in good-faith negotiations to resolve the issue.
“We urge Eskom to reassess its stance and engage with the city in finding a mutually beneficial resolution,” Moraka said.
“In the meantime, the city has formally requested that Eskom retract is public notice within five days.”
The situation has become so tenuous that Electricity and Energy Minister Kgosientsho Ramokgopa had to intervene.
After this intervention, Eskom withdrew its threat to cut the electricity supply to the City of Johannesburg.
However, it still showed the extent of Eskom’s challenges with municipal debt and the unwillingness of municipalities to pay for the electricity they use.
Loading ...
