South Africa stress-testing fix for R350-billion electricity problem

Electricity and energy minister Kgosientsho Ramokgopa’s department believes it has found an approach to address the issue of access to free electricity for indigent households in South Africa.

However, it must first address another significant problem: skyrocketing municipal debt to Eskom. While the debt figure sits at R78 billion, Ramokgopa noted that various customer categories collectively owe municipalities R349 billion.

“So it’s individual households, it’s businesses, and it’s also government. So, we require a solution that attends to all of those issues, but also ensures that when you experience load reduction, you are able to minimise collateral damage,” said Ramokgopa.

“We also know that there are fatal shortcomings with regards to free basic electricity that we have observed.”

To this end, he said approximately 10 million households qualify for free basic electricity, but only approximately 2 million receive it.

However, engagements with private sector players may have presented a solution.

“We have found a solution that we think can be the best template for helping us resolve this question going into this future, and this has been tried and tested in about three municipalities,” the minister said.

“What this solution does is help to resolve a number of questions. The first one is to make sure that the municipalities comply with grant conditions for the write-offs.”

“The second one is that, even if you have not applied for a write-off, it is possible for you to pay your debt and ensure you are able to pay your current account without diminishing the financial viability of municipalities,” he added.

He said his department would nominate two municipalities per province that would be used to stress-test the solution.

“The municipalities that are going to receive priority are the ones that are the top debtors to Eskom. The ones that owe the most amount of money,” said Ramokgopa.

However, he noted that municipalities must opt in and won’t be forced into the initiative.

Ramokgopa recently revealed a frightening figure relating to municipal debt to Eskom — if it is left unabated at current rates, debt to Eskom will reach R3.1 trillion by 2050.

“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.”

This presents a significant challenge for many South African municipalities, which must raise money to pay back the money they owe while maintaining their individual grids.

Municipalities then apply for hefty price hikes to raise the money, negatively impacting their customers.

The instability of their individual grids also forces some municipalities to implement load reduction.

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

“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.”

Eskom CEO Dan Marokane revealed that the debt relief programme addressing municipal debt to the power utility isn’t working.

He said 72 municipalities had secured spots in the programme, but only 4% are compliant.

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

Eskom general manager Agnes Mlambo said the country’s major metros owe a significant portion, roughly 8%, of the utility’s total municipal debt.

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