Municipalities’ R107bn debt to Eskom threatens power utility’s financial sustainability

The billions of rands in unpaid electricity bills owed by local municipalities have festered to the extent that they are considered a new risk to Eskom’s financial sustainability.

Previously, the biggest risk to Eskom’s sustainability was the nearly R400-billion debt stock on its financial books before the government came to the power utility’s rescue in March 2023 by taking over a portion of the debt.

Non-paying municipalities are now undermining Eskom’s recovery efforts.

By mid-December 2024, municipalities across the country owed Eskom R107-billion, a debt that had accumulated over many years as municipalities failed to pay the power utility for electricity consumed. This debt snowballed from R28-billion in March 2020.



Source: Eskom

Source: Eskom

The defaulting municipalities include the Emalahleni, Govan Mbeki and Lekwa municipalities in Mpumalanga; Maluti-a-Phofung, Matjhabeng and Ngwathe municipalities in the Free State; Emfuleni, City of Tshwane, and  Ekurhuleni municipalities in Gauteng, and Matlosana municipality in North West.

On 31 January, Electricity Minister Kgosientsho Ramokgopa raised the possibility that Eskom would never be able to recover the billions of rands in unpaid electricity bills from the errant municipalities. Ramokgopa, who had the unpleasant task of announcing the return of Eskom blackouts after more than 10 months of reprieve, said that once electricity bills go unpaid for 90 days, the likelihood of collecting monies owed becomes slim.

“It is not necessarily a collection problem … it is a manifestation of a bigger problem. We have accepted that municipalities have haemorrhaged a lot of engineering, financial and technical skills over a period of time. Therefore, they lack the ability to plan, do projections on what will likely make [electricity] demand happen going forward [given population growth], changes in the profile of demand [upward economic mobility of consumers] and pressures placed on the electricity distribution infrastructure,” said Ramokgopa during a briefing to MPs on Eskom’s financial and operational situation.

However, Eskom’s finance chief, Calib Cassim, will arguably want to recover that R107.4-billion in municipal debt and find money anywhere possible, considering that the power utility faces a big hole in its revenue over the next three years. The National Energy Regulator of South Africa recently approved electricity tariff increases for Eskom that are substantially lower than what the power utility had hoped for.

Calib Cassim. (Photo: Dwayne Senior / Bloomberg via Getty Images)

Read more: Eskom accepts ‘new reality’ of ‘low electricity tariffs’ in future

The lower tariffs are set to create financial hardship for Eskom as it expects a shortfall of R250-billion in its revenue from electricity sales over the next three years. So, Eskom cannot afford to write off the debt owed by municipalities.

The government intervenes 

The Eskom municipal debt is so worrying that the government is intervening again to find solutions after previous interventions failed.

In May 2023, the National Treasury introduced a debt-relief scheme for municipalities, with the institution agreeing to write off their Eskom debt over three years, subject to certain conditions. The overarching condition was that errant municipalities would have to keep up with their current electricity payments.

Most municipalities that signed up for the debt relief programme have not met their electricity payment commitments. Out of 71 local councils that signed up for the programme, only 23 had met their payment obligations by March 2024.

Eskom said the Treasury was engaging with non-compliant municipalities to potentially terminate their participation in the programme. The government is mulling a new intervention to tackle municipal debt.

The new municipal debt intervention will be led by Ramokgopa, Eskom and Treasury officials and local government bodies, mainly the South African Local Government Association, which oversees municipal governance affairs.

The parties have so far devised three ways of tackling municipal debt, largely focusing on stamping out corruption in the electricity distribution value chain.

First, Eskom wants to roll out smart prepaid meters, especially in municipalities with enormous electricity debt. Eskom is targeting the rollout of seven million meters in the next three years.

“We need to formalise electricity connection and roll out prepaid systems. We can ensure the completeness of electricity billing. Everyone who consumes electricity will be billed and we can have an instrument for executing credit controls,” said Ramokgopa.

Second, Eskom has been urged to partner with municipalities on billing systems, maintenance and connections. These partnerships, it is believed, can also help Eskom deal with corrupt officials at the municipality level, who are complicit in establishing illegal electricity connections that allow households and businesses to not pay for electricity consumed.

Third, the government’s free basic electricity scheme will be reviewed. This scheme provides 50kWh per month of free electricity to indigent households. The Treasury gives municipalities money to roll out the scheme. However, Eskom believes errant municipalities use the money for purposes other than providing free electricity.

Underscoring this is that Eskom’s Cassim estimated that the free basic electricity scheme was supposed to benefit 10 million customers, but in reality, only two million customers were beneficiaries. “The scheme is not working… Municipalities don’t pass down the benefit to consumers and keep the money [instead],” he said.

Easy to fix

Kevin Mileham, the DA’s spokesperson on electricity and energy in Parliament, said the problem of the free basic electricity scheme was easy to fix.

“If municipalities were doing their job, they would have an accurate register of all the people that were getting free basic electricity, that is covered by the municipal equitable share [funding allocations distributed by the national government].

“Every year, according to the census, your municipality has whatever percentage of indigent people. This data can be used to provide free basic services. If they were doing their job, the provision of free basic electricity would not be a problem for municipalities,” Mileham told Daily Maverick.

Eskom is mid-way through a three-year programme designed for the Treasury to take over R254-billion of debt on its books and put it in a sustainable position of no longer being dependent on taxpayer-funded bailouts for survival. Cassim has warned that if municipal debt is not addressed by 2028, Eskom will be forced to knock at the Treasury’s door for another bailout. Since 2008, Eskom has received bailouts amounting to R496-billion. DM