Eskom will receive no additional reimbursement from the Treasury over and above the proposed Eskom debt relief support package of R254bn announced in the February budget, to cover the write-off of debt owed by municipalities.
Municipalities that have so far been approved to have their Eskom debt written off represent about 40% of the R64bn in arrear debt owed to the state-owned power utility, but this number could still increase as municipalities have one more week to apply for the Treasury’s Eskom municipal debt relief programme.
The programme was launched in May, and it gives municipalities the opportunity to have their Eskom debt written off systematically over a period of three years if they comply with strict financial management conditions — including keeping up to date with current payments to Eskom.
Both Eskom and Treasury told Business Day the debt relief will not have a negative effect on Eskom’s balance sheet, nor place any additional burden on the country’s finances.
“Municipal debt relief has no additional cost to the fiscus over and above the existing Eskom debt relief package. However, it is anticipated the successful implementation of the municipal debt arrangement will improve Eskom’s balance sheet,” Treasury said.
Debt relief for approved municipalities, said Eskom, was provided for in its balance sheet with “appropriate estimated credit loss provisions”.
“The future write off will not impact the balance sheet; however, future growth of municipal debt will negatively impact Eskom’s financial health,” Eskom said.
More than half (136) of the 257 municipalities in the country have defaulted on their Eskom bills. By September 30, only 28 municipalities had been approved for the debt relief programme and an additional nine applications were being assessed.
In written responses to questions , Treasury said the provincial treasuries indicated there were another 25 applications in their possession for verification which, if submitted, would bring the total number of applications to 62.
The 28 municipalities whose applications have already been approved collectively owed Eskom about R27bn, that is 42% of the R64bn owed to Eskom.
According to Eskom, the five most indebted municipalities are Emalahleni and Govan Mbeki in Mpumalanga, Maluti-a-Phofung and Matjhabeng in the Free State and Emfuleni in Gauteng.
Of these, Emalahleni, Govan Mbeki and Emfuleni have so far been approved for participation in the debt relief programme.
The Treasury said it could not provide reasons that some indebted municipalities had decided not to participate in the initiative. “Since debt relief is a voluntary process, a municipality electing not to apply was not requested to provide reasons for council exercising the ultimate discretion to not apply for debt relief,” Treasury said.
Eskom has previously said debt owed by municipalities could increase to R68bn by end-March 2024. Electricity minister Kgosientsho Ramokgopa has said debt owed by municipalities to Eskom has already escalated by about R4bn in the current financial year and “there is no sign of that increase abating any time soon”.
The utility explained that to improve revenue collection, it has developed a debt management strategy, with one of the key interventions being “active partnering with municipal customers”.
About 43% of Eskom’s sales and revenue is derived from municipalities that resell electricity provided by Eskom to municipal customers. Through the active partnering programme Eskom provides operational support to municipalities on a case-by-case basis to address challenges such as nonpayment by customers, energy losses through electricity theft for example, and maintenance backlogs.
The services can include the installation, audit and replacement of meters, technical skills development, procurement management services, and the removal of illegal connections.
However, municipalities have not been overly eager to embrace the active partnering concept.
“Regrettably, only five municipalities have entered into active partnering agreements to date,” Eskom said.
Other interventions by the utility to address the rise in municipal debt include credit management, which can involve negotiating payment arrangement with municipality, or ultimately legal action and the limiting of service to indebted municipalities.
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