There is a fundamental misunderstanding of Eskom’s debt. We hear and read regularly that “municipalities” owe Eskom R50bn, and that this number is surging. The misunderstanding is what municipalities are. To Eskom, they are a category of customer (it’s called “distribution” in its annual report).
“Municipalities” is its biggest customer category by a long shot, twice as big in terms of electricity sold than its next biggest customer category, industry, consuming about 10% more than mining and industry combined. But in reality, “municipalities” are 256 separate local governments, about 160 of which are licensed electricity distributors.
Nearly half of this debt is held by just the top 10 “problem” municipalities. The real picture is that Eskom has a big problem with a handful of its municipal customers and a smaller problem with a few more, not the collective “municipalities”.
Eskom’s own failures in the construction of Medupi and Kusile dwarf the municipal debt problem.
Eskom and electricity distributor municipalities have a symbiotic relationship, and have done since the 1960s when the national government and the then Escom stopped issuing municipalities with generating licences. This made municipalities a captive market for Eskom.
Similarly, Eskom’s provision of cheap coal-fired electricity allowed municipalities to charge a markup on electricity bills, which they used to fund other services, and more recently subsidise services for lower-income households. The surplus from the sale of electricity also allowed municipalities to grow their economies and develop industries.
System collapsing
This mutually dependent relationship is now under threat. Load-shedding has created twin catastrophes for municipalities. There is a huge incentive for municipal customers to defect from municipal grids, and load-shedding does unquantified damage to municipal distribution infrastructure. Substations, transformers and other key pieces of kit municipalities use to move electricity from the Eskom transmission grid to municipal customers are designed to run 24/7. Constantly switching them on and off during load-shedding wears equipment out far ahead of its expected useful life, a cost that needs to be covered by municipalities. So, in the end, after 15 years of load-shedding, who will really owe who?
A municipal waste system collapsing because the electricity revenue it has relied on has not been replaced is an energy transition failure. Industry will not only leave towns because of a lack of electricity, it will leave because of water supply problems, waste management problems and poor roads. Property rates and services charges should, ideally, cover these, but these other critical services delivery functions have even lower payment rates than electricity, and nonpaying households cannot be excluded from these services.
Electricity is the keystone of municipal revenue and credit control. For capable and well-resourced municipalities it makes sense to pursue other sources of electricity, building their own generating capacity or procuring from independent power producers. This tackles a few problems: it reduces load-shedding, and thus the damage to municipal grid infrastructure. Moreover, it could also reduce grid defection and create another source of revenue, helping to secure the financial position of municipalities.
Institutional capacity
Depending on the cost, it may also reduce the price of electricity. If this electricity is generated from renewable energy sources it makes products produced in the municipality more competitive in carbon-sensitive global markets.
Ekurhuleni has led the way in pursuing alternative supplies of electricity, followed closely by Cape Town. Strengthened governance and reduced administration costs would obviously also help, but there is no neat piece to complete the puzzle. For any solution, the institutional capacity of local authorities is critical.
But what about the less lucky municipalities, sometimes poorly endowed, sometimes mismanaged or corruptly managed, sometimes both? How could they respond? It is likely that these municipalities will need additional transfers from the National Treasury. These must be conditional, with municipalities receiving more freedom about how to spend it when they demonstrate the governance capacity.
Local government success is critical for any hope of a just transition in SA. But it needs to be agile, recognise the importance of electricity to its sustainability, and be supported in developing a suite of alternative revenue streams to ensure it can continue to provide services.
Municipalities are Eskom’s biggest customer category. Eskom needs them to succeed for Eskom to succeed.
• Foster is a PhD researcher at Stellenbosch University’s Centre for Sustainability Transition. He is attached to the Reset project, which explores social equity in the energy transition across SA, India, Germany and the Netherlands. He writes in his personal capacity.
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