Eskom’s R3.1-trillion municipal debt warning

South Africa’s electricity and energy minister, Kgosientsho Ramokgopa, says the issue of municipal debt to Eskom must be addressed urgently, adding that it will reach R3.1 trillion by 2050 if left unattended.

Speaking to SABC News, the minister said South African municipalities owe Eskom more than R78 billion, and this is partly to blame for hefty municipal electricity tariff hikes.

Asked about the unaffordability of the municipal price hikes for many South Africans, Ramokgopa explained that municipalities’ debts are of significant concern.

“It’s important that we have engagement with municipalities. They are owing Eskom over R78 billion,” he said.

“If the current trend line continues, the collections and payments we are seeing now, if you extrapolate it to 2050, it’s about R3.1 trillion. This is huge.”

These municipalities have to raise the money to pay back their debts to Eskom and maintain their individual grids. Hence them applying for hefty electricity price hikes.

The instability of their individual grids also forces some municipalities to implement load reduction, which Ramokgopa says is a significant problem.

“That’s why it’s important that this conversation must happen and quickly because we also want to address the issues of load reduction,” he said.

“It has nothing to do with generation, but the consumer’s experience is the same. There are hours in the day that they don’t have electricity.”

The minister added that the government has put together a set of solutions to address these challenges.

“I am confident that we should find an answer soon,” said Ramokgopa.

However, he noted that he isn’t in a position to give an exact timeline.

South Africa’s municipal debt relief programme, launched in May 2023, was designed to help municipalities manage their debts with Eskom.

However, it hasn’t worked as planned. Municipalities had until 31 October 2023 to apply to enter the programme.

During an Eskom media briefing in June 2024, Eskom general manager Agnes Mlambo noted that payments owed to Eskom by local governments nationwide had climbed to R74.3 billion by the end of April 2024.

During that same briefing, Eskom CEO Dan Marokane said 72 municipalities had secured spots in the debt relief programme. However, he said only 4% were compliant.

“The current level of municipal debt acceleration is unsustainable,” said Marokane.

Mlambo noted that of the R74.3 billion owed to Eskom, the country’s major metros owed R5.6 billion — roughly 8%.

Eskom said advocating for and pursuing a sustainable solution for municipal debt will be a key focus over the next three years.

On the topic of major metros with debts to Eskom, the state-owned power utility and the City of Johannesburg’s City Power have locked horns over an outstanding payment of R1.1 billion.

Eskom launched legal action against City Power over the debt in May 2024.

“The power utility started to default on its payments from October 2023, and no payment was received for the March 2024 invoice,” said Eskom.

“The debt owed by City Power has reached unprecedented levels, exacerbating Eskom’s already strained financial situation.”

It said it had no choice but to apply to the Johannesburg High Court for a declaratory order forcing City Power to pay the debt.

City Power snapped back at Eskom following its application, saying it had declared a dispute against the state-owned utility for alleged overbilling on bulk purchases dating back to 2021.

“Eskom has admitted in some cases that there have been potential billing inaccuracies and has so far refunded City Power at least R483m over the recent years,” it said.

It claims that Eskom owes it R3.32 billion.

Eskom preemptively rebutted City Power’s allegations in its initial statement, saying that even if it was overcharged, that didn’t negate City Power’s responsibility to pay bulk power bills.

“Eskom denies the claims made by City Power and will prove its position through the arbitration process,” Eskom said.

“In terms of the electricity supply agreements sanctioned by the Electricity Regulation Act of 2006, if a municipality raises a dispute with Eskom, it must still pay.”

The High Court found in favour of Eskom and instructed City Power to pay the R1.1 billion it owes.

However, in its latest statement, the Johannesburg power utility said it is appealing the High Court ruling.