The only effective way for Eskom to get paid by municipalities which owe it billions is for it to completely take over the management of their electricity supply, billing, and payments.
This was revealed in a recent Free Market Foundation interview with Eskom CEO Andre de Ruyter.
In South Africa, municipalities have an exclusive right to supply electricity to businesses and households within their boundaries.
This means Eskom’s supplies municipalities with electricity, and these municipalities then provide clients within their boundaries with power.
Municipalities are responsible for all aspects of electricity supply to their clients, including maintaining the distribution network, billing, and collecting money.
There is, however, a problem. Many municipalities have collapsed and are unable to provide a stable electricity supply or pay their Eskom bills.
While these municipalities still receive electricity payment from their clients, it does not filter through to Eskom. The money is either stolen or otherwise misappropriated.
De Ruyter said non-paying municipalities are a major problem with the money owed to Eskom ballooning to R36 billion.
The top 10 municipalities owe Eskom around 70% of the R36 billion, while the top 20 makes up 85% of the debt.
“This means the problem is not widespread, but it is a problem of huge magnitude,” said De Ruyter.
Eskom has tried many approaches to get paid, including cutting off the power supply and attaching bank accounts, vehicles, and other movable assets. This did not work.
The reality is that these municipalities are characterized by mismanagement and corruption and they do not care much about serving their citizens.
To attach vehicles or other movable assets, which are used to serve the municipality’s inhabitants, is, therefore, a fruitless exercise.
Eskom is now trialling a more productive solution called “active partnering”.
What this means, in simple terms, is that Eskom takes over from the municipality to manage everything related to the supply of electricity.
Eskom acts as the agent for the municipality to maintain the electricity infrastructure, install prepaid meters, do the billing, and collect payments.
What is particularly important, De Ruyter said, is that the money is paid into an Eskom bank account instead of a municipal account. This stops municipal workers from misappropriating the funds.
“With the payments going into an Eskom bank account, we can ensure the current account is serviced on a regular basis,” he said.
“If you prevent the further buildup of incremental municipal debt, it is a very good start towards addressing the debt problem.”
De Ruyter said the active partnering concept is a far more constructive and appropriate way of engaging with their municipal customers and ensure they get paid, and that service delivery in these municipalities are up to standard.
Active partnering an established concept
Active partnering is making headlines again because of recent comments by De Ruyter, but the concept is nothing new.
As far back as 2012 Eskom promoted active partnering within the electricity distribution industry to resolve problems.
Eskom highlighted that the electricity distribution industry was essentially a “closed system” with 2 key players – municipalities and Eskom.
It said active partnering will use the existing industry capacity to the benefit of the wider industry by “healing from within” and helping entities to help themselves.
Eskom tried to make the term as non-threatening to struggling municipalities as possible, but it basically meant that it would take over electricity distribution from failing municipalities.
The concept gained momentum, and in 2014 Eskom and the South African Local Government Association (SALGA) signed a memorandum of understanding (MoU) around active partnerships.
The MoU aimed to address both electricity distribution industry challenges and specific operational challenges impacting on the reticulation of electricity.
Like most things in South Africa, it is easy to talk about plans, but far more difficult to get things done. Six years after the MoU was signed, active partnering is still not helping all struggling municipalities.
There is, however, some progress.
In 2017 Eskom and the Phumelela Municipality reached an active partnering agreement which included the conversion of all municipal customer meters to split prepaid meters.
This partnership helped with effective revenue recovery and reduced outages for residents.
Eskom is also trialling active partnering in the Maluti-A-Phofung municipality, which has basically collapsed.
The municipality and Eskom have been at loggerheads over non-payment of its electricity bill which has resulted in freezing the municipality’s bank account.
The new active partnering approached is likely to produce a more favourable outcome for both Eskom and the municipality.