Eskom’s recovery jeopardised by R92bn municipal debt, Parliament is told

Eskom’s turnaround efforts are under threat as mounting municipal debt casts a shadow over its recovery. Despite recent strides in maintenance and power supply stability, the utility revealed that 75 municipalities owe it more than R92-billion in unpaid electricity bills — a staggering R19-billion increase since March.

Eskom’s executive leadership warned Parliament’s Portfolio Committee on Energy and Electricity on Wednesday that the unchecked rise in debt may soon jeopardise the power utility’s ability to sustain critical operations. They also revealed that municipal debt is growing by roughly R10-billion a year.

So what’s behind the rise?

Monde Bala, Eskom group executive for distribution, explained an alarming, recent phenomenon.

“Nersa [National Energy Regulator of South Africa] allocates distribution licences to distributors of electricity, of which Eskom distribution is one. Municipalities … also do their own distribution, they take bulk services from Eskom and in turn are supposed to pay for the bulk services that Eskom provides to municipalities.

“What has happened in the last decade,” Bala said, “we started seeing a phenomenon where municipalities just either short-paid or not paid at all. Now the situation has been exacerbated in the last year or year and a half by the bigger metros joining in this practice of either short-paying or not paying at all.”

Joburg still in the red

The news follows a high-stakes, high-drama disagreement in November when Eskom notified the City of Johannesburg that it intended to interrupt its supply of electricity. The city — South Africa’s largest and the economic centre of the country — sprang into action and, with the intervention of the energy and electricity minister, Dr Kgosientsho Ramokgopa, began a process aimed at resolving the metering dispute at the heart of the issue.

As part of that agreement, the City of Johannesburg and City Power agreed to settle their R1.4-billion current account with Eskom. Bala told Daily Maverick on Wednesday that payment had still not been received in full.

He confirmed this to the MPs present at the meeting.

“No. They did not pay when they were supposed to pay the R1.4-billion. They subsequently paid, I think on the last day of November, they paid about R999-million of that 1.4-billion with a promise to pay the other 400-million on the 2nd of December. On the 2nd of December, they only paid R322-million and not the full R400-million so, either way, I think there is a problem.

“There is a further issue in that the account for the month of November was due at the end of November and that account was 1.4-billion. So there is still that 1.4-billion which has now come overdue. The promise is that they were going to pay the 700-million of that by the 6th of December, so we’ll see what happens on the 6th of December,” said Bala.

Eskom served its notice of intention to interrupt the electricity supply to the City of Joburg after failing to settle a metering dispute.

On Wednesday, Bala said it was “quite painful” for Eskom to do that “because we understood that behind the meter there are people that actually consume the electricity, pay the municipality for the electricity that they have consumed and, unfortunately, the municipality has not passed on the money to Eskom. It is unfortunate. It is actually incorrect for people to suffer simply because the municipality was not doing what they were supposed to do.”

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Other municipalities have made attempts to avoid similar high-stakes conflicts. On Monday, Nasiphi Moya, the executive mayor of the City of Tshwane, announced that the city had “reached a landmark agreement with Eskom to settle the R6.67-billion historical debt owed to the utility.

“This 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, with the first payment of R400-million scheduled for December 2024. Additionally, the city has already paid R425-million for arrears for October 2024. A critical condition of this agreement is the timely payment of current accounts within 30 days of billing.”

‘Not sustainable’

Eskom Group chief executive officer Dan Marokane, taking the committee through the power utility’s presentation on Wednesday, explained why municipal debt was such an issue.

“The intervention that we have on the table from the National Treasury is not yielding the results that were anticipated. You are all aware that debt continues to grow and I’m going to show you a slide of the top 10 municipalities in terms of where they are.

“The intention is not to make them ashamed, the intention is to show you 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,” he said.

“The growth of that debt is quite sharp and that’s the worrying part. Over just the last year or so, we’ve had R20-billion of increase in this space. It’s not sustainable. It will drive us to a point where by the end of March it may be over R120-billion or so.

“Fundamentally, something’s not working in the way the municipal financing structures are set up, and it requires solutions beyond ourselves. 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.

There were also upsides to clearing the debt, he explained. With a “runway of financial sustainability”, Eskom would be able to better plan its work.

“Because of the National Treasury intervention, we are now able to take decisions around maintenance, long-lead items, and really doing proper planning, because it’s not only about money being available on the eve of doing the job — the planning that comes before that is quite important. The quality of the work that is executed is an outcome of the planning that’s gone into it.” DM