Eskom’s plan to claw back R109 billion

Electricity and Energy Minister Kgosientsho Ramokgopa has said that Eskom plans to use an active partnering approach to recoup the R109 billion, which it estimates will owed by South African municipalities at the end of March.

This is according to Ramokgopa’s response to a Parliamentary Q&A concerning the successful initiatives identified to recover the significant sum of debt.

“To address these systemic issues, the Ministry is implementing the Active Partnering Approach, a structured intervention to improve municipal electricity businesses while maintaining public ownership,” Ramokgopa said.

“The extent of the intervention is designed to respond to the specifics of each participating municipality. It is designed to support both functional and dysfunctional municipalities.”

The approach involves the municipality remaining the licensed distributor of electricity. However, it enters an agreement allowing Eskom to assist with billing, revenue collection, infrastructure maintenance, and reticulation services.

The municipality entering the agreement also requires its electricity accounts to be separated from other municipal finances and the free basic electricity grant to be administered by the state utility.

Additionally, Eskom will help precincts invest in infrastructure upgrades through municipal borrowing, grants, and Public-Private Partnerships.

Ramokgopa pointed to the case study of Maluti-a-Phofung Municipality in the Free State, which had one of the worst-performing electricity distribution administrations, as proof of the initiatives’ effectiveness.

This included massive arrears to Eskom, severe infrastructure neglect, and over 60% of customers consuming electricity illegally.

However, by implementing the Active Partnering Model, Eskom helped Maluti-a-Phofung to recover R2 billion in outstanding payments and reduce electricity theft and illegal connections.

Eskom also assisted the municipality in reducing unplanned outages by repairing infrastructure and investing in meter audits to improve billing accuracy.

Maluti-a-Phofung is no longer adding to its Eskom arrears, and revenue from paying customers is being used to fund infrastructure upgrades.

Ramokgopa noted that the programme has also been implemented in the Modimolle-Mookgophong, Thabazimbi, and Bela Bela municipalities and will soon be extended to others in the Free State and North West.

While these programmes may be working for individual municipalities, Eskom needs to effectively implement its recovery plan across a number of municipalities in the country before their debt becomes unmanageable.

Nishan Maharaj, head of fixed interest at Coronation, said Eskom’s ballooning municipal debt could force the National Treasury to announce another bailout for the state-owned power utility.

Maharaj believes Eskom is unlikely to fill the financial hole caused by municipal non-payment.

“This thing can’t sit on the balance sheet forever, it has to be corrected,” he said.

“And if it’s not corrected via tariff collection, then inevitably someone has to fill the gap, and that someone will have to be the government.”

He estimated that Eskom would require relief in the region of R50 billion. However, Maharaj warned that another bailout could lead to complacency regarding improving its performance.

His prediction comes just two years after the government announced an interest-free debt relief arrangement of R254 billion for the power utility.

Finance Minister Enoch Godongwana announced the bailout during his Budget Speech in February 2023.

“This consists of two components. One is R184 billion. This represents Eskom’s full debt settlement requirement in three tranches over the medium term,” he said.

“Second is a direct takeover of up to R70 billion of Eskom’s loan portfolio in 2025/26.”

However, Godongwana noted that the arrangement would be accompanied by strict conditions, including that Eskom cannot borrow any further funds from 1 April 2023 until the end of the debt-relief period.

The Minister also said that Eskom must focus on maintaining its existing generation fleet to improve available generating capacity, and the bailout may only be used to settle debt and interest payments.

The article has been edited to indicate that the R109 billion is what is estimated to be owed at the end of March 2025.