- Bloomberg reports that the overdue amount owed to the utility has quadrupled over the last five years.
- Arrear municipal debt has escalated out of control to R82.3 billion, up from 58.5 billion reported last year.
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.
Godongwana explained that the ultimate goal is the profound transformation of these municipalities, by empowering them to build financial resilience, amplify their capacity to generate sustainable revenue, and rekindle a culture of paying for services rendered.
To date over 60 municipalities who owe Eskom for unpaid bulk electricity services have applied for government’s debt relief arrangement however, the culture of non-payment is systemic and rooted in the embedded corruption in most municipalities. This has had a knock effect regarding basic service delivery where electricty, water and sewerage infrastructure and management have declined rapidly.
Eskom debt crisis
Eskom itself is in an unsustainable debt crisis to the tune of of over R400 billion an relies on massive tax payer bailouts to survive. Eskom’s R254 billion debt relief package provided by treasury has been incorporated into both the balance sheets of government and Eskom – “implying an increase in government debt”.
A task team has been established with officials from the National Treasury, the Department of Public Enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity
If municipal debt is left unaddressed, the situation could lead to service interruptions, hindering economic activities. Despite continuous efforts to address the inconsistent and late payments, the debt, specifically that of the CoT, continues to grow and hinders Eskom’s ability to invest in essential infrastructure, maintenance, and the development of sustainable energy solutions,” the power utility said.
Eskom is pursuing a multipronged strategy aimed at recovering municipal arrear debt owed, however, the problem continues to escalate. The top 20 defaulting municipalities constituted 76.7% of total invoiced municipal arrear debt. The municipal debt relief programme is expected to improve payment levels and the settlement of current accounts by municipalities, which will lead to an improvement in Eskom’s operational cash flows over time.
To date, a total of 52 municipalities have received approval or conditional approval from National Treasury to participate in the programme, accounting for 86% of the total municipal arrear debt balance at 31 March 2023. Another 20 defaulting municipalities, accounting for a further 11%, have applied for municipal debt relief and are awaiting approval from National Treasury. No write-offs have been processed to date as the municipalities must comply with the conditions for 12 months for Eskom to process the first third of the debt write-off.
Eskom cautions that despite achieving a profit in the first six months, an after-tax loss of R23.2 billion is expected by the end of the financial year due to the continued poor generating plant performance, lack of cost-reflective tariffs, high debt service costs and non-payment by some customers, which continue to contribute to the loss-making position in the short term. However, the organisation does foresee the financial situation improving significantly in FY2025 due to a combination of Generation operational improvements, the benefits of the debt relief package and municipal debt relief programme, together with continued focus on efficiencies and addressing shortcomings in the internal control environment.
Author: Bryan Groenendaal
