Councils add to Eskom’s multibillion-rand headache
Ten defaulting municipalities, themselves the focus of graft claims, owe the struggling parastatal R11.7bn
While Eskom licks its state capture wounds and attempts to recover from a financial crisis which left it with a R2.3bn loss in the last financial year, municipal debt to the electricity provider is skyrocketing.
The total overdue municipal debt owed to Eskom has dramatically escalated to R17.011bn as at the end of September, an increase of about R2.7bn in only four months since the end of May.
At the centre of the debt crisis are 10 defaulting municipalities, most of which are embroiled in allegations of corruption, fraud and maladministration. At the end of September the 10 municipalities owed R11.7bn of the total municipal debt. Five of these municipalities are in Mpumalanga.
Located among the rolling hills of the Makobulaan Nature Reserve, the Thaba Chweu Local Municipality is one of the defaulters, owing almost R500m to Eskom. And according to reports, which cite the findings of a forensic investigation into the municipality, officials allegedly plundered about R350m from the public purse – money that could have been used to pay its Eskom debt.
Now, the government is scrambling to avert a second financial year of losses at the embattled electricity provider, with plans to review the constitutional and legislative mandate for electricity distribution between Eskom and municipalities and restructure Eskom’s debt to municipalities.
Responding to questions, Eskom said that based on the trend of the past six months it is clear that its targets for debt collection from municipalities will not be achieved unless there is a “drastic improvement in payment levels” in the second part of the financial year.
“Eskom is continuously engaging with the individual municipalities, provincial and national government. Eskom implemented a number of concessions to make it easier for municipalities to pay their monthly current account and the outstanding debt. Where required, Eskom enters into payment arrangements with defaulting municipalities. As a last resort, Eskom implements electricity supply interruptions to municipalities,” the parastatal said.
Minister for cooperative governance and traditional affairs Zweli Mkhize, in response to questions, told Times Select that in recent years, revenue from electricity has seen a decline in municipal profit margins due to higher costs of bulk electricity.
In addition, over the past few years municipal debt had been increasing at “an alarming rate”.
“A major financial problem is ensuing in many municipalities in the country due to inadequate collection of revenue as a result of the runaway non-payment for municipal services. The level of municipal debt is growing on a monthly basis from all the categories, namely organs of state, business and households,” he said.
“Municipalities are also experiencing cash-flow problems which have resulted in them defaulting on their bulk electricity account with Eskom. Some of the causes include the widespread culture of non-payment by consumers. The ageing infrastructure results in high electricity and water losses and create opportunities for illegal connection.”
Mkhize also blamed a lack of “qualified and competent personnel” for revenue collection or financial management that has constrained work in many municipalities.
One of the government’s solutions was to resolve the constitutional impasse between municipalities and Eskom.
With the introduction of section 215 (1) and section 229 (1) of the constitution, the Municipal Demarcation Board established municipal boundaries, designating areas constituting the jurisdiction of such municipalities.
“From the energy supply side this created a complex situation for municipalities where areas within one municipal boundary would be serviced by different service providers, with different service standards, different tariff structures for customers, and revenues going to different institutions, Eskom or the municipality,” Mkhize said.
“Eskom and municipalities have conflicting positions on this matter. Municipalities believe they have exclusive authority to administer the reticulation of electricity. Eskom’s view, on the other hand, is that executive authority is not defined in the constitution and, as such, it does not imply an exclusive authority to municipalities on electricity distribution and reticulation.
“Municipalities are unable to levy surcharges or exercise credit control in Eskom supply areas. There is a lack of tariff parity between municipal supply areas and Eskom supply areas, meaning simply that, for example, Eskom reticulates electricity cheaply to richer areas compared to what Johannesburg City Power does to poorer areas, a Sandton-Alexandra type disparity.”
The government was also reviewing licensing conditions by the National Energy Regulator (Nersa) to delineate jurisdictions between Eskom and municipalities, and further plans to restructure Eskom’s debt to municipalities.
Mkhize said there are also plans to consider the efficacy of conventional metering compared with prepaid installations.
“We do understand Eskom’s difficult situation as well as (their) need to be paid. Added to this is the complication of businesses within affected municipalities which refuse to be affected with power cuts while they have paid the municipalities, who have not passed on the money to Eskom,” he said.
While these solutions are being implemented, it is unlikely that the defaulting municipalities will meet their obligations before the end of the financial year.