South Africa’s capital city makes R6.7 billion deal with Eskom
South Africa’s administrative capital, the City of Tshwane, has reached an agreement with state-owned power utility Eskom to settle its R6.67 billion historical debt owed to the utility.
Tshwane Mayor Nasiphi Moya said that the “agreement, formalised as a court order on 26 November 2024, is a significant milestone in our journey to financial recovery and stability.”
The arrangement outlines a structured repayment plan spanning five years.
A critical condition of this agreement is the timely payment of current accounts within 30 days of billing, with the first payment of R400 million scheduled for December 2024.
Moya said that Tshwane has already paid R425 million in arrears for October 2024.
“This settlement signals a turning point, ending years of costly litigation and redirecting our focus toward improving service delivery and enhancing revenue collection systems,” said Moya.
She said that the city is “fully committed to honouring this arrangement in full and will adopt stronger financial governance practices to ensure that this never happens again.”
Eskom flipping the switch on debtors
The SOE has said that municipal debt remains one of its biggest challenges that threatens its financial sustainability.
As of the end of September 2024, municipal debt owed to Eskom topped R90 billion.
“Eskom’s financial sustainability and ability to supply electricity at affordable prices is contingent upon its ability to improve its balance sheet by increasing revenue and reducing expenses. Revenue can only be increased by collecting electricity debts and/or increasing electricity tariffs,” said Eskom in a recent statement.
Eskom is currently battling the City of Johannesburg (CoJ) over an amount of R4.9 billion in unpaid bills, excluding the current account of a further R1.4 billion which will become due and payable at the end of November 2024.
“When entities like the CoJ fail to pay Eskom timeously or at all, it forces Eskom to borrow additional money at premiums to fund operational costs,” said Eskom.
“Operational costs should be funded by revenue generated from electricity sales and not by borrowings.
“Borrowing money to fund operational cash shortfalls caused by the failure of municipalities such as the CoJ to pay Eskom for bulk electricity increases the costs of providing electricity exponentially,” added the utility.
The utility has shown that it will not hesitate to approach the country’s courts to collect what is owed.
Recently, Eskom attached Emfuleni Municipality’s bank accounts to recover R8 billion in arrear debt after the municipality failed to comply with the Debt Relief Program.
The attachment of the bank accounts allows Eskom to receive payment for the electricity it supplies, ensuring continued service to the municipality’s customers.
The utility said that it had exhausted all legal and mediation avenues to secure payment for services rendered since 2018.
“Eskom cannot financially sustain the electricity debt of the municipality without severely impacting its own operations and the citizens of the country.
Mounting debt and tariff increases
Sitting with an unsustainable R423 billion debt burden, Eskom received a R254 billion debt relief package over three years from National Treasury in 2023.
This was a program that required municipalities to settle their payments to the power utility.
Yet, this is easier said than done, with the Finance MEC of the country’s economic hub, Gauteng, recently outlining that the province’s municipalities owe nearly R20 billion to the power utility.
In hopes of balancing the books, Eskom has submitted a request to the National Energy Regulator of South Africa (Nersa) for tariff hikes that would generate over R1.4 trillion in revenue for the 2026-2028 financial years.
The utility aims to achieve R446 billion in revenue for 2026, R495 billion in 2027, and R537 billion in 2028.
Proposed price increases for Eskom’s direct customers are substantial: 36.15% from April 1, 2025, to March 31, 2026; 11.81% from April 1, 2026, to March 31, 2027; and 9.10% from April 1, 2027, to March 31, 2028.
These hikes significantly exceed the current inflation rate.
Eskom argues that it needs a price increase for several reasons; including an 11.2% increase in primary energy costs (mainly due to coal), and the inability of the government to force municipalities to pay the R78 billion they owe to Eskom.
Eskom has also argued that the regulator, NERSA, has historically given it lower price increases than it needs, and this has contributed to its R400 billion debt.
The utility argues that it needs the money to avoid further reliance on government bailouts, while opponents argue that it is unfeasible for a majority of the population.
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