- City Power and Eskom have reached an agreement over their long-standing electricity billing and debt dispute of over R5 billion outstanding to Eskom.
- The two parties have been in dispute regarding the amount owed to Eskom as debt and how the power utility bills City Power for bulk electricity supply.
During a media briefing on Tuesday, South Africa’s Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, announced that City Power will pay an amount of R3.2 billion to Eskom over the next four years and Eskom will write off R830 million in penalties and related costs.
“We have accepted that there are major challenges with regards to tariffs during winter. There is a time of use and during winter, the tariff is particularly heavy, and households, industries and customers find it very difficult to meet their obligations. So, we have accepted that during winter periods, there will be relief in relation to the payment of the R3.2 billion. We have been able to write off that R830 million as a result of firstly, they don’t have to pay interest on that which is owed. Eskom has also conceded with regard to the load shedding estimations and also the penalties that have to do with notifiable maximum demand. So, all of those have been removed…totalling to R830 million and that’s the concession that Eskom has made,” said Ramokgopa.
The Minister said the resolution of the dispute between the two entities can be used as a template for other struggling municipalities. “We are excited about this development. We also have something similar in Tshwane and as and when municipalities come forward, we will have these discussions on how best to provide a degree of relief. Of course there must be a case that is presented, accepting that Eskom has also got its obligations…they need to collect because they generate electricity. That costs money and they must recover that money from the end user to reinvest it back into their asset base and into the generation of electricity,” Ramogkopa said.
Eskom debt
Eskom has unsustainable debt of over R420 billion. Over a three year period, government is in the process of providing Eskom with debt relief amounting to R254 billion. This will take the form of advances of R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26. These amounts represent Eskom’s full debt settlement requirement over the next three years. They will be financed through the R66 billion medium- term expenditure framework (MTEF) baseline provision announced in the 2019 Budget, and R118billion in additional borrowing over the MTEF period. Additionally, in 2025/26, government will directly take over up to R70 billion of Eskom’s loan portfolio.
Eskom effectively pays interest on interest. In FY23/24 it repaid R90bn principal+interest with net earnings of only R10bn, supplemented by a R76bn bailout. The state owned power utility reported a record loss of R55 billion in its latest annual financial statement for 2023/24.
Existential threat
Ballooning municipal debt is now an existential threat to Eskom which is expected to reach R120 billion by March 2025.
Eskom Group Executive for Distribution, Monde Bala, explained that metro’s have now joined municipalities in a culture of short paying or not paying Eskom at all after collecting money from the end user. A staggering 75 municipalities are in debt to Eskom.
Eskom Group chief executive officer Dan Marokane explained that the intention is not to make them (municipalities) ashamed, the intention is to show the scale of the challenge that we are dealing with. It consumes resources from management time, and it does place fundamental risk insofar as the financial sustainability of the business is concerned.” Read more
Related news: Tax payers money is already nearing R495 billion in Eskom bailouts
“Fundamentally, something’s not working in the way the municipal financing structures are set up, and it requires solutions beyond us. We don’t have the leeway of typical credit management tactics that we can use here. We cannot switch off the whole country because there’s no payment coming, but at some point, we will have to switch off ourselves because there’s no money coming in from the municipalities,” said Marokane.
Municipal debt relief programme failure
The South African government under Deputy President, Paul Mashatile, introduced a R56.8 billion debt relief programme last year to assist ailing municipalities who are struggling to pay their electricity bills.
“The debt-relief arrangement for Eskom outlined in the 2023 Budget noted that a large proportion of outstanding municipal debt is owed to Eskom. National government has introduced support to relieve municipalities of debt to Eskom. The debt…will be written off over a three-year period, in equal annual tranches. This is provided the municipality complies with set conditions. These conditions include enforcing strict credit controls, enhanced revenue collection [and]up-to-date payment of Eskom monthly current account,” said South Africa’s Finance Minister Enoch Godongwana at the time.
But municipalities have failed to comply with the terms. South Africa’s National Treasury has warned that municipalities’ slow compliance with conditions of the debt relief programme on arrears to Eskom risk delaying debt write-offs. Read more
Cosmetic solutions and false promises
In December last year, a high-level engagement convened by the Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, and City of Johannesburg Mayor Dada Morero with Eskom executives and City Power over R4.9 billion outstanding to Eskom. At the time, Eskom had served the city and City Power with a notice of intention to interrupt power supply at certain pre-determined times of the day due to non-payment of debt. According to Eskom, the City of Johannesburg and City Power owe nearly R5 billion in unpaid bulk electricity supply, plus a further R1.4 billion, which Eskom said is due at the end of each month.
In response, the City of Johannesburg subsequently called the move by Eskom “unjust, counterproductive, and potentially harmful to… residents and businesses”. The two parties came to a settlement, but City Power breached the deal with another short payment. Read more
Similarly, the City of Tshwane Metro recently has signed a payment arrangement plan to settle its R6,7 billion debt owed to the power utility. In terms of the payment arrangement plan, the City of Tshwane has committed to make the initial payment of R400 million in December 2024, with the last payment scheduled for March 2029. However, this is unlikely to happen because the metro is technically bankrupt with R11 billion in debt. Read more
Tokologo Local Municipality prime example of major problem
Eskom explained that following the notice published in November 2024, Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, brought all the parties together to discuss a way forward over the municipal debt crisis.
“The objective was to address the critical issue of municipal debt and establish a framework for cooperation between Eskom and municipalities within the processes of intergovernmental relations. Eskom has confirmed that these processes are still ongoing, and no final decision has been made regarding the potential disconnection. “If a decision is made to disconnect bulk electricity supply to Tokologo Local Municipality, affecting Boshof, Seretse, Dealesville, and Hertzogville areas, Eskom will issue a revised disconnection date, which will be published with a notice period of at least 14 days,” Eskom explained.
The electricity supplier assured members of the public that it will address the issue with “fairness”.
“Eskom appreciates the input from members of the public who submitted written representations regarding this matter. These submissions have been thoroughly reviewed as part of the decision-making process. Eskom remains committed to addressing this issue with fairness and transparency, all while ensuring its financial sustainability and the sustainable provision of electricity nationwide,” Eskom said.
Author: Bryan Groenendaal
