Populist call to scrap Soweto’s debt to Eskom

After his promise to scrap e-tolls, Gauteng’s new premier, Panyaza Lesufi, now wants the government to promise to scrap Soweto’s debt to Eskom. And President Cyril Ramaphosa has hinted in parliament this might be possible under unspecified conditions.

Cancelling the Soweto debt, which Eskom puts at R7bn including interest, is a very bad idea. Lesufi is playing populist politics when he claims it would aid development in the townships. That Ramaphosa seems to be going along with this makes it even more dangerous.

The facts matter. Soweto ’ s debt to Eskom is not like that of other townships, or that of the ailing municipalities that collectively owe the utility R51bn, which Lesufi also seemed to suggest should be written off. The R7bn debt is owed by individual households that get their electricity supply directly from the power utility. This is in contrast to the rest of SA, where most households are supplied by their municipalities, which buy the power from Eskom — and run up the debt when they cannot or do not pay.

In Soweto’s case, the debt problem is not about affordability. Even those residents who could afford to pay their electricity bills do not, or pay just a fraction of what they owe. This is about a long history of nonpayment going back to the 1980s’ rent and service charge boycotts. Democracy came to SA decades ago, but many of Soweto’s residents are still boycotting.

Before the Covid-19 pandemic, the payment rate in Soweto had sunk to just 12%. It has improved to 20%. But in most other townships it is much higher, more than 80% in some cases. Efforts to install prepaid meters in Soweto and to get people to pay their electricity bills have faced fierce resistance.

Of course, every time the debt is forgiven or written off it hardwires the problem. This is the classic “moral hazard” economists talk about in banking where bailouts risk encouraging irresponsible behaviour to continue.

Soweto’s electricity debt has already been written off more than once, most recently in 2020. There is little reason to suggest that repeating this will yield better or more developmental outcomes. It is surely an incentive not to invest in improving the supply of electricity to this or any other township Lesufi has in mind for debt write-offs.

The premier is already dodging the question of how Gauteng will pay to maintain the freeways after e-tolls; if he and others in the government want to see user charges suspended for electricity as well, someone will have to pay. Either residents in other areas of SA will have to cross-subsidise Soweto’s nonpayment, or taxpayers will.

The same goes for the total of R51bn in municipal debt to Eskom, though this raises thornier questions about how municipalities fund themselves and how to deal with their dysfunction. Many use revenues from electricity to fund other services. Paying Eskom is often low on their list when they cannot collect from residents or struggle to balance their books.

The government urgently needs to find a more durable solution to the ailing state of many of SA’s municipalities. The trouble is that the municipal debt has climbed sharply over the years, blowing a greater hole in the finances of Eskom. Its finances are unsustainable as it is, with the power utility not generating enough cash from its operations to service its R400bn debt burden. It survives, and gets deemed by its auditors to be a going concern, only on tens of billions of rand in years of cash transfers from the government.

The government is at last on the cusp of agreeing to the long promised debt relief package for Eskom. That will see it take over between one-third and two-thirds of the Eskom debt. But, it will do that only on condition Eskom improves its efficiency and that surely has to include collecting its debts. Otherwise, it will just return for more bailouts.

These are complex issues for the government, politically and financially. Lesufi’s intervention cannot be helpful. That is especially so given that, with the e-toll debacle, there are already big questions whether SA will be able to rely on user charges to fund infrastructure development.

The government has long talked about infrastructure as a key engine for growth. It will have to be paid for somehow.

DEMOCRACY CAME TO SA DECADES AGO, BUT MANY OF SOWETO’S RESIDENTS ARE STILL BOYCOTTING