Eskom’s plan to take over electricity distribution in defaulting municipalities is a serious encroachment on constitutionally mandated local government functions, according to the Independent Municipal and Allied Trade Union (Imatu).
Imatu, which represents more than 110,000 municipal employees, said Eskom’s plan posed a direct threat to municipal jobs, accountability and service delivery.
However, many municipalities have already agreed to have their distribution licences revoked should they fail to pay Eskom regularly and Eskom may not be the only contender to step in.
Eskom CEO Dan Marokane announced that the power utility it would seek support from the Treasury to compel municipalities that are in arrears to enter into what it called distribution agency agreements (DAAs) with the utility.
It is aimed at resolving the rapidly deteriorating municipal debt crisis that is putting Eskom’s sustainability at risk. Municipal arrear debt to Eskom amounted to almost R100bn at the end of March, a 33% increase on the preceding year.
The municipal debt relief program launched by the Treasury in 2023 has failed, according to Marokane. Of the 71 municipalities that qualified for the programme, by the end of February only 16 were paying their current Eskom bills in full every month, according to the Treasury.
Marokane suggested that the Treasury make the DDAs mandatory by way of a treasury circular or legislative changes.
That would allow Eskom to take over the electricity distribution service, including metering, billing and collection of revenue. Eskom would then retain the amount related to bulk electricity purchases and pay the balance over to the municipality.
The distribution licence would remain with the municipality and consumers will still pay municipal rates, which are generally higher that Eskom’s retail rates. That arrangement would be for a predetermined period before it is handed back to the municipality .
Imatu rejected this proposal.
“While framed as a solution to municipal debt, this proposal represents a serious encroachment on constitutionally mandated local government functions and poses a direct threat to municipal jobs, accountability, and service delivery,” the union said in a statement.
“Electricity distribution is not merely a technical function, it is a core service that municipalities are legally empowered to manage in terms of the constitution.”
According to Imatu, Eskom’s suggestion would undermine democratic local governance. “Municipalities cannot be bypassed when challenges arise, they must be supported, not stripped of their functions. Eskom’s proposal would displace thousands of workers, weaken service responsiveness, and ignore the real problem: an unsustainable local government funding model.”
Municipalities require urgent structural support, not centralised interventions that remove their ability to serve communities directly ...
— Independent Municipal and Allied Trade Union
Electricity distribution remains one of the few stable and predictable sources of revenue for municipalities. Removing that function would drastically weaken their ability to generate income, fund other essential services and maintain financial viability. For many municipalities, particularly those in smaller towns and rural areas, that revenue stream was the backbone of their entire operating budget, Imatu said.
“Municipalities require urgent structural support, not centralised interventions that remove their ability to serve communities directly. Instead of reallocating responsibilities, Imatu calls for an urgent high-level review of how local government is funded and supported.”
The union said it would use “every legal, political and other means” to resist attempts to centralise local government functions.
Imatu general secretary Johan Koen said: “This is not a solution, it’s a distraction. The real issue is the broken funding model that leaves municipalities under-resourced and overburdened.”
Koen said stripping local authorities of core functions such as electricity would only deepen the crisis. “Handing over municipal electricity infrastructure to Eskom, a utility already battling to fulfil its own mandate, risks creating more instability, not less.”
The municipalities that are currently part of the National Treasury Debt Relief Program were, however, required to “to make an application to Nersa to voluntarily revoke the municipality’s licence in terms of section 18 of the Electricity Regulation Act, 2006 (Act no 4 of 2006),” should they fail to comply with the conditions of the programme.
That includes paying Eskom on time and in full.
This differs from the agency agreement and may open the door for contenders from the private sector to apply for the licence. It would also make it very difficult for affected municipalities to re-enter the distribution space at a later stage.
Although some municipalities have outsourced their electricity functions, most notable Mafube in the Free State, the municipality retained the licence. In Midvaal, the best-managed municipality in Gauteng, an extensive procurement process has commenced to appoint a service provider, with huge interest, even from abroad.
The model for such outsourcing was that the service provider invested heavily in repairing and upgrading the infrastructure, which enabled it to provide a more efficient service. The investment would then be recovered from electricity sales over a period of about 20 years.
While it may improve electricity supply, this would not solve the problem of a failing municipal funding model, Imatu said.
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