Eskom’s money troubles

Eskom’s municipal debtors in arrears have doubled every winter since 2011 and there is no reason to believe this year will be any different.

This is clear from an Eskom presentation to stakeholders that a source forwarded to Moneyweb.

In its integrated report, Eskom declared municipal debtors of R2.6 billion at the end of March 2014. This has more than doubled from R1.2 billion a year before.

The presentation shows that the top 30 defaulting municipalities at the end of March collectively owed Eskom R2 billion.

Eskom had made payment plans with the defaulting municipalities, which were due to be finalised in October 2013, and therefore expected the debt to have decreased significantly. However, debt decreased by only R103 million from October and in fact, half of the 30 local authorities on the list got deeper into debt during that period.

Currently three municipalities face the strong possibility that their power supply will be cut on August 4, unless they pay their debt or agree with Eskom on a payment plan. They are all in the Free State and are more than 90 days in arrears.

They are Ngwathe municipality, that includes the towns of Parys, Vredefort, Heilbron, Ngwathe and Koppies; Maluti-a-Phofung that is made up of Harrismith, Kestel, Tshiame, Phuthaditjhaba, Tsheseng and Witsieshoek; as well as Dihlabeng municipality that includes Bethlehem, Fateng-Tse-Ntsho, Fouriesburg, Paul Roux and Rosendal.

Ngwathe’s average current account is R12 million, but it owes Eskom R216 million. Maluti-a-Phofung, with an average monthly account of R32 million owes R228 million and Dihlabeng, which owes Eskom R58 million, has an average monthly bill of R8 million.

It remains to be seen if Eskom will go through with its threat, but in light of its own precarious financial state, it has little choice. It said in the presentation dated late in April, that it was working with provincial treasuries and departments of local government to address the outstanding municipal debt.

“In Mpumalanga, (Eskom) agreed with the MEC CoGTA (October 2013) that all municipal current bills will be honoured and outstanding debt will be paid off by end October 2014. Signed debt acknowledgment letters are being received from the defaulting municipalities.”

“In the North West, (Eskom) agreed with the MEC CoGTA (March 2014) that all defaulting municipalities will be given until March 31 2015 to pay the outstanding debt, and that each municipality will submit a debt payment plan to Eskom.”

It seems that in the Free State however, Eskom’s efforts have met with little success. “(Provincial)Treasury is doing their part in getting all the municipalities to present what they are doing and what help they need to eliminate debt but it is not effective. It appears as if municipalities attend and then have no intention to follow through on what they have presented,” the utility said.

In the meantime businesses are extremely concerned. Harrismith, for example, is home to among others a Nestlé infant nutrition plant that employs 400 people, the head office and factory of Nouwens Carpets with 180 people, a plastic bottling plant that supplies to well-known soft drink brands like Coke-a-Cola, as well as the landmark Engen/Wimpy complex halfway between Gauteng and Cape Town that also accommodates a variety of restaurants.

Peter Warther, director of the Burkview complex that accommodates the Engen/Wimpy pit stop, says he and his tenants are very frustrated and concerned about the possibility that Eskom may cut the power supply to the whole of Harrismith. “I cannot run the generator non-stop. We recently had a 48-hour power failure and running the generator cost R40 000,” he says.

Warther says the investment in this property amounts to R120 million. “If this kind of thing continues, nobody will invest in smaller towns,” he says.

He believes the solution lies in getting power supply directly from Eskom.

John Faul, general manager of the Nouwens Carpets plant says if the town’s power supply is cut, he will have no choice but to shut the plant down and send the 180 employees home without pay until the supply is restored. Running the plant on generators will cost Nouwens R10 000 per hour, he says.

He agrees that it will be better to buy electricity directly from Eskom, but says the municipality apparently has to agree to that and it is doubtful that it will sacrifice revenue from large customers.

Nestlé SA’s Motshidisi Mokwena said the group has experienced similar risks at other plants, however not to the extent that there’s a threat of cutting the power supply.

She said from an investment point of view, Nestlé invested R345 million in 2008 to expand the Harrismith factory and increase its production capacity. “We are committed to doing business in the market for the long term hence our strategy to engage and find lasting solutions to the current issue,” she said.

“We have committed ourselves to an engagement process with all key stakeholders to find a solution – at national, regional and municipal level. Obviously it’s not in anyone’s best interest – our company, employees, the province and the country but most importantly, our consumers – if there are electricity cut-offs. Our engagement with the municipality is on-going and we hope a solution will be found soon for their billing and payment problems.”

Eric Bott, director of Energy Measurement Consulting says the defaulting municipalities’ electricity distribution licences should be revoked.

Brief success?

Chris Bosch, CEO of Rural Maintenance, said his company took over the management of the electricity system, including billing, from Maluti-a-Phofung municipality in September last year. It invested R172 million in improving the infrastructure and systems, including that serving the industries in Harrismith.

At the end of March, Rural Maintenance terminated the 25-year public private partnership contract (PPP) due to political interference. Litigation is pending and the company anticipates that it will lodge a multibillion-rand claim in due course.

Bosch said during the seven months that Rural Maintenance was responsible, Eskom was paid on time and in full. Faul said from Nouwens’ point of view, electricity management works well under Rural Maintenance and billing was done on time.

Rural Maintenance has been running a similar project in Mafube municipality, including Frankfort in the Free Sate since 2012, Bosch said.

For the moment the company is however not interested in replicating the model in other municipalities. It first wants to settle its litigation on the Maluti contract.

Source: Moneyweb

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Eskom’s money troubles