Eskom to roll out tight debt relief for municipalities owing R58bn

Eskom wants new mechanisms to be explored to deal with non-payment of electricity debt owed by municipalities. Picture: Kim Ludbrook/EPA

Eskom wants new mechanisms to be explored to deal with non-payment of electricity debt owed by municipalities. Picture: Kim Ludbrook/EPA

Published May 11, 2023


ESKOM will be instituting a stringent debt relief programme targeting municipalities that owe the troubled power utility more than R58 billion in unpaid electricity bills.

The proposed municipal debt relief will include a debt write-off, which will see Eskom writing off municipal debt over three years, subject to the municipalities’ compliance with certain conditions.

The municipal debt relief programme is part of the government’s efforts to resolve Eskom’s financial and debt crisis and will see the state provide the power utility with three advances to be used to address its debt service obligations (interest and principal), which will be R78bn in the 2023/24 financial year, R66bn and R40bn in 2024/25 and 2025/26, respectively.

The funds will be advanced when Eskom’s debt falls due through an interest-free subordinated loan to be converted into Eskom shares if certain conditions are met.

In the 2025/26 financial year, the government will take over up to R70bn of Eskom’s debt through an arrangement as determined by Finance Minister Enoch Godongwana.

The state-owned power utility also wants new mechanisms to be explored to deal with non-payment of electricity debt owed by municipalities, including requesting the National Energy Regulator of SA (Nersa) to amend the licence conditions of municipalities to facilitate consequence management by Nersa for failure to honour electricity supply agreements, which may include re-assigning a municipality’s licence.

Another proposal will allow Eskom to continue to implement a regime of installation of smart pre-paid metres in areas supplied by the power utility to improve its revenue collection.

The National Treasury has also suggested that municipalities should progressively adopt similar operating regimes.

According to the plan, the National Treasury will continue to implement initiatives to address weaknesses in revenue management in municipalities, including setting cost-reflective tariffs, developing proper budget policies to facilitate revenue enhancement and ensuring completeness of revenue by addressing variances between the billing system and the general valuation roll.

”These initiatives are supported by the Municipal Revenue Management Improvement Programme technical advisors. A transversal tender for the smart meter solution (smart pre-paid meters) will be issued to assist municipalities generate cash pre-service, rather than post-service,” reads a Treasury document dated March 31, 2023.

Eskom will also completely write-off the principal debts and interest and penalties of municipalities that owe Eskom as of March 31, 2023, over a three-year period, but this will exclude the current Eskom March 2023 accounts.

Municipalities will be required to apply for Eskom’s municipal debt relief, and if successful, any existing repayment plan with the power utility relating to this debt will come to an end – as long as the municipality meets the conditions for debt relief, it no longer needs to repay any of the arrears, interest or penalties that it owed Eskom as of March 31, 2023.

Eskom has undertaken to stay the component of legal proceedings relating to the debt to be written off.

”Every time the municipality met the conditions of the relief for 12 consecutive months, Eskom, in consultation with the National Treasury, will write-off a third of this debt,” Treasury said.

A municipality’s continued benefit of debt write-off in the second year for the second debt relief and in third year will be subject to the municipality meeting the strict conditions for the 12 consecutive months respectively of both years.

Treasury has warned municipalities participating in the debt relief programme that it is vital that they effect a change in culture, and Eskom debt will be written-off only after a municipality can demonstrate a change in its behaviour through meeting the set conditions.

Municipalities have been warned if they fail to perform during the three-year duration of the debt relief, the benefits of the debt relief will immediately cease, which will lead to Eskom being obliged to implement its credit control and debt management policy on a defaulting municipality, which must immediately start repaying its arrears, interest and penalties.

Eskom may also resume any legal proceedings relating to the municipality’s arrears, interest and penalties as of March 31, 2023 including attaching the municipal bank accounts, and the normal penalties applicable to the wider local government will also apply.

In its response to the National Treasury municipal debt relief programme, the SA Local Government Association (Salga) noted that municipalities themselves were owed R306bn as of December 31, 2022, and proposed that municipalities be assisted to develop incentives for customers to pay such as debt relief if current accounts are kept up to date and to deal with users of services who can no longer be traced.

Trade union federation Cosatu expressed its belief that Eskom is too big to fail and that, for various reasons, the power utility incurred debts it cannot afford to pay.

Cosatu cited rampant theft and corruption, mismanagement, institutional neglect and lack of investment, ageing infrastructure, as well as rising levels of debts owed to Eskom by municipalities, businesses, communities and even government entities among the reasons the debt the power utility has incurred.