Eskom has warned MPs that municipal debt might surge by as much as R240bn in the next five years if nothing is done to find a solution to the problem, complicating its unbundling efforts.
The utility’s top brass on Wednesday told MPs that municipal debt — which is projected to reach R116.2bn by end-March from R110.5bn at end-December 2025 — poses a risk to the electricity industry.
In the period from April 1 to end-December, municipal debt grew by R15.9bn with metros contributing R2.3bn to this and non-metros R13.6bn.
If nothing was done to stem the growth the debt could reach R358bn by 2031, Eskom executives warned in a presentation on the utility’s third-quarter performance to parliament’s electricity and energy committee. The executive team was led by CEO Dan Marokane.
The forecast by Eskom, means without any interventions, the municipal debt will increase by about R240bn in the next five years.
Municipal debt of R116.2bn in the 2025/26 financial year would represent a 23% growth from the 2025 financial year-end level of R94.6bn.
Debt relief challenges
The high level of municipal debt poses an obstacle to Eskom’s plans to unbundle its operations into generation, transmission and distribution into separate subsidiaries with the unbundling of distribution scheduled by 2030 if the solvency metrics — largely dependent on municipal debt — can be improved.
Earlier this month Eskom took formal legal steps under the Promotion of Administrative Justice Act ahead of electricity supply interruptions or limits to 14 municipalities that had failed to settle accounts for 18 months, failed to meet National Treasury debt relief conditions or posed a significant financial risk to the utility’s overall stability.
Several initiatives are under way to deal with the debt. The Treasury has a debt relief programme involving 71 municipalities of the country’s 257, though MPs were told that only 10 were compliant by paying their current accounts. The programme is a conditional, performance-based debt write-off mechanism administered through strict eligibility and compliance rules.
The programme provides for Eskom writing off all qualifying municipal debt (including interest and penalties) owed at March 31 2023, excluding the current account, over a three-year period only if municipalities meet compliance conditions.
Support for municipalities
Another initiative is the conclusion of distribution agency agreements in which Eskom assumes certain functions but the distribution licence remains with the municipality. It also involves the use of prepaid meters.
“Distribution agency agreements will support municipalities to achieve sustainable local service delivery while also supporting Eskom’s financial stability through improved billing and revenue collection. The goal is to sign 14 distribution agency agreements by March 31,” MPs were told.
In a written reply to a parliamentary question by MK party MP Sanele Mwali, electricity and energy minister Kgosientsho Ramokgopa said that under the distribution agency agreement model, Eskom supports municipalities in the reticulation and distribution of electricity, as well as revenue collection and retail services.
“Through this partnership, the aim is to improve municipal service delivery, enhance revenue generation, billing and collection, and ultimately enable municipalities to meet their payment obligations to Eskom more reliably,” Ramokgopa said.
“The distribution agency agreement establishes a structured partnership framework that enhances revenue recovery, improves operational efficiency and builds institutional capacity for municipalities to manage their distribution assets effectively. It is designed to create a sustainable foundation for credible municipal service provision while reducing financial risk across the value chain.”
Eskom’s financial performance to end-December reflected R273.7bn in revenue (more or less in line with the budget), and a profit of R27.6bn compared to the budgeted R16.4bn.
Revenue was 3.4% higher year on year due to higher tariffs as sales volumes were 5.7% lower from industrials, redistributors, agricultural and residential customers, with the latter increasing the use of solar PV particularly during the summer months.
Total open-cycle gas turbine fuel costs in the period to end-December were R2.3bn lower than budget due to better diesel prices and reduced turbine usage.
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