South Africans dump Eskom because of high prices and load-shedding

Eskom is facing an uphill battle in its efforts to achieve financial sustainability and ensure that South Africa becomes load-shedding-free.

Eskom, which is South Africa’s sole energy utility, is in severe financial distress and battling to get municipalities to settle their debts and halt dwindling demand.

The Organisation for Economic Co-operation and Development produced a report after analysing the state-owned company’s financials.

It found that declining consumption, sluggish economic growth, and constant price increases have landed Eskom in a vicious cycle.

It notes that the utility’s total sales declined by 15% between 2013 and 2023, with residential consumption falling by over 20% during the same period.

The OECD argued that this could be attributed to slow economic growth, resulting in large end users decreasing their demand, which had previously comprised Eskom’s core baseload.

Poor reliability also contributed to the increased self-generation by businesses and households nationwide.

To mitigate this dwindling demand, the report highlights how Eskom increased its prices to compensate for lost revenue.

It noted that electricity prices have increased nearly tenfold since 2000 and have been significantly higher than CPI inflation since 2009.

However, these increases were introduced despite the utility’s inability to guarantee energy security, further incentivising the uptake of alternative energy sources.

The OECD stated that, in addition to corruption and financial mismanagement, Eskom’s financial strain can also be attributed to tariffs that are lower than the cost recovery level before the steep increases.

This rapid spiral that Eskom is in also threatens its ability to get itself back on track.

“Eskom’s deteriorating financial health has undermined its capacity to undertake the necessary investment to become economically viable,” the report said.

“Its credit rating has sunk to ‘speculative’ grade, limiting its borrowing capacity even further, and forcing the government to implement successive bailouts.”

As of 2024, Eskom’s debt accounted for 8% of South Africa’s gross domestic product (GDP) and 15% of the country’s government debt.

The government decided to cover R254 billion of the company’s debt over three years through the Eskom Debt Relief Act, passed in 2023, to manage this debt and restore financial stability.

The Act also temporarily suspended further borrowing by Eskom to secure public funding. 

However, the OECD warns that these regulations may hinder investment in energy security and the green energy transition.

Mounting municipal debt

The OECD’s report also mentions municipalities’ key role in South Africa’s electricity sector, as they distribute roughly 40% of the energy produced by Eskom.

Municipalities are often the sole distributors of electricity in their localities, meaning that underinvestment and poor maintenance usually result in power outages in these areas.

Like Eskom, these municipalities also face the issue of non-payment, with the nationwide amount estimated to be around R360 billion.

This issue is then passed on to Eskom, with South African municipalities currently owing the power utility over R100 billion in debt.

Energy and electricity minister Kgosientsho Ramokgopa said in a recent briefing that Eskom’s inability to reinvest this money could result in the “total collapse of the electricity complex in South Africa.”

According to the OECD, almost 80% of municipal debt belongs to 20 municipalities that are particularly struggling. One of Eskom’s largest debtors is the City of Johannesburg’s energy utility, City Power.

According to Eskom, City Power owed R4.9 billion, excluding its current account, which amounted to a further R1.4 billion.

Eskom stated that it had considered various avenues to accommodate the metro’s payment difficulties but could no longer afford to do so without further straining its finances.

Therefore, similar to the Eskom Debt Relief Act, City Power agreed to pay R3.2 billion of the debt over four years.

As a concession, Eskom will write off R830 million of City Power’s debt that accumulated over 10 years.

“In terms of the Constitution and the Intergovernmental Relations Framework, the CoJ is supposed to cooperate and assist Eskom with fulfilling its mandate of ensuring that citizens have access to affordable electricity,” Eskom said.

“The CoJ has breached these obligations by not paying Eskom for the bulk electricity it supplies, making it almost impossible for Eskom to fulfil its mandate.”

To mitigate this issue, Ramokgopa announced that Eskom would adopt an active partnering approach to recoup the money owed to it by municipalities, while allowing them to remain the licensed distributor.

However, the municipality must enter 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.