Municipal arrears to Eskom hit R75bn
• Debts continue to snowball despite Treasury’s relief programme
Despite an intervention from the Treasury to rein in snowballing arrear debt owed to Eskom by municipalities, the burden of outstanding payments has grown beyond expectations.
According to Eskom, by February 29, total arrear debt owed by municipalities had escalated to R74.52bn — well ahead of a previous estimate that this debt would increase to R68bn by end-March.
Municipal arrears have more than doubled since 2021, increasing from R35bn in 2021, to R45bn in 2022, and then to R56bn in 2023 before jumping to R75bn during the first 11 months of the 2023/24 financial year.
“Of the 248 municipalities supplied by
Eskom, 135 municipalities have overdue debt (including 36 that owe less than R1m) as at February 29. Some of these municipalities were approved for the National Treasury debt relief programme,”
Eskom told Business Day.
About 60% (R44.7bn) of the roughly R75bn debt is owed by just 10 municipalities, eight of which have been approved to participate in the Treasury’s debt relief programme.
However, arrears have continued to increase after the Treasury launched the debt relief programme for municipalities in May 2023. As a result, arrear debt that is being addressed through the programme (about R55bn) now covers only about 70% of the total outstanding amount owed to Eskom.
At this rate, Eskom could find itself back at the Treasury’s door soon in need of another bailout, said Happy Khambule, head of energy and environment for Business Unity SA (Busa).
It also appears municipalities that have been approved to participate in the debt relief programme have been struggling to comply with the strict conditions attached to the debt relief.
The rise in arrear debt owed to Eskom can jeopardise the government’s interventions to address the utility’s own rising debt levels.
When it launched the threeyear, R254bn Eskom debt relief package in 2023, the Treasury flagged rising municipal debt as a major risk to the success of the bailout in addressing the state-owned power company’s financial problems with its total debt standing at R443bn at endSeptember 2023. It was in recognition of this risk that the Treasury launched the municipal debt relief programme.
In its financial statement for the six months to end-September, Eskom pointed out that municipal arrear debt, which totalled R70bn at that time, remained an area of concern.
At the same time Eskom’s bottom line is being eroded by a decline in electricity sales caused by load-shedding, the impact of increased embedded self-generation such as house
holds that have put up solar panels, and lower demand due to difficult economic conditions.
The debt relief programme allows municipalities to have their Eskom debt written off systematically over three years. To qualify, municipalities have to comply with 14 conditions, including keeping up with current account payments to Eskom. Should they fail to meet the conditions, any debt already written off would remain so, but they would not qualify for further debt relief.
If a municipality’s application is approved, a third of the total owed will be written off for each of the three years of the debt relief. But this is only after a municipality has complied with the conditions for 12 consecutive months. It will thus take 36 months for a full debt write-off.
Should a municipality fail to comply with the conditions it would have to immediately start repaying arrears, interest and penalties to Eskom.
The Treasury said in emailed responses to Business Day that up to February 29 it had received 72 debt relief applications from municipalities, of which 71 were approved.
TSHWANE
The 71 approved municipalities owed Eskom R55.3bn on March 31 2023.
“The only application that was not approved was from the City of Tshwane due to the city not having been able to commit to all 14 of the ... conditions for debt relief,” the Treasury said.
Information from Eskom shows that the City of Tshwane held the largest arrear account of R8.6bn at end-February 2024.
The City of Joburg is the other municipality among the 10 that have the most outstanding debt that is not participating in the debt relief programme. The City of Joburg, which owed Eskom R1.75bn at end-February, had not made an application to participate in the debt relief, the Treasury said.
The Treasury has not yet terminated any municipality’s participation in the programme, but it told Business Day that so far 30 municipalities had moderately (60%-75%) and 41 poorly (below 60%) complied with all 14 conditions.
“Participating municipalities are allowed a 30-day curing period to make good on any noncompliance during the previous month,” Treasury said.
So far, no debt has been written off.
According to the Treasury, the first five municipalities’ debt relief approvals were effective on June 1 2023 and the review of their overall compliance in relation to the first 12-month cycle would be considered during June 2024.
“Subject to the outcome of the review, they could benefit from a one-third debt write-off at that time,” it said.
ROOT PROBLEM
Khambule said the debt relief programme was a temporary solution and did not address the primary problem that gave rise to the escalating debt.
“If we don’t solve the municipal finance problem, then we will never really address this issue,” he said.
An effective solution, he said, could not assume that municipalities were financially secure or even close to being so, because most of them were not.
“The debt will just come back and continue to increase unless we change the municipal finance model which is where the real issue is.”
Some of the issues that had to be addressed were poor revenue collection and municipalities’ shrinking pool of paying customers.
Municipalities depended on the markup they earned from the resale of electricity for a large portion of their income, but more businesses, especially in rural areas, were petitioning Eskom to pay it directly. This, said Khambule, was because of situations where municipal customers were paying their bills, but municipalities were not using that money to pay Eskom. As a result, the number of customers that municipalities had was getting smaller.
The problem was made worse because those customers who paid their bills were usually also the ones opting for selfgeneration by installing solar panels, or, as the electricity market developed, they would purchase electricity from private power producers.
This was putting pressure on municipalities to become active players in the competitive electricity market and to put in place more transparent guidelines for the use and cost of its infrastructure for when wheeling did occur, Khambule said.
SOME OF THE ISSUES THAT HAD TO BE ADDRESSED WERE POOR REVENUE COLLECTION AND A SHRINKING POOL OF PAYING CUSTOMERS