Treasury will scrap municipalities’ Eskom debt but with strict conditions

National Treasury will scrap municipalities’ Eskom debt but with strict conditions that include paying the power utility and cutting off users who fail to pay them for electricity.

Municipalities owe Eskom R57 billion.

Treasury said during a media briefing on Wednesday that municipalities can apply to have their Eskom debt scrapped, but it will require them to be strict with consumers who fail to pay for the power they use. Non-payment became a habit over the past 25 years and was one of the reasons municipalities find themselves in so much debt to Eskom.

This debt relief initiative is part of Finance Minister Enoch Godongwana’s plan to restore Eskom’s financial viability and avoid rescue packages. The initiative only applies to areas supplied by municipalities and not those supplied by Eskom itself, such as various townships. So far only one municipality has applied.

Municipalities must meet 14 conditions to have a third of their debt scrapped for three successive years. They will also have to adhere to all conditions during this time. They will have to pay their Eskom current accounts within 30 days, table a funded budget and will not be allowed to table a deficit or use accounting mechanisms, such as depreciation, to hide and operating deficit.

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Eskom debt relief initiative

The municipal debt relief initiative consists of four elements, namely conditional and application-based debt write-off, resolving municipal non-payment, installing prepaid meters and continuing municipal revenue enhancement initiatives from Treasury.

Eskom will then write off the debt, including interest and penalties, of all municipalities that owe the electricity parastatal as of 31 March 2023 over three years.

Municipalities will have to find new mechanisms to deal with non-payment, including working with the National Energy Regulator of South Africa (Nersa) and the Department of Mineral Resources and Energy (DMRE) to facilitate improved consequence management.

Municipalities and Eskom must install smart pre-paid meters to improve collection for commercial, business and household consumers and once this is done, consider debt forgiveness for customers within normal credit control processes on an individual basis.

Treasury will continue municipal revenue enhancement initiatives to address weaknesses in the revenue value chain in municipalities, including setting cost reflective tariffs, developing proper budget policies to facilitate revenue enhancement, ensuring completeness of revenue by aggressively addressing variances between the billing system and the general valuation roll (GVR) for alignment and issuing a transversal smart meter solution to progressively generate cash pre-service in municipalities.

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Municipalities must spend realistically

Marli van der Woude, revenue policy coordinator at Treasury, said it is time for municipalities to make realistic and credible revenue projections and adjust their spending accordingly. If a municipality is unable to reach a fundable position, it will get the opportunity to present a plan of how it will achieve it.

She also pointed out that one of the main reasons for municipalities not paying Eskom is that they are not collecting payments from customers, but she emphasised that they have to collect payments for electricity as well as water. If customers refuse to pay, their electricity must be cut and their water supply restricted.

From 1 April this year, municipalities must collect 80% of revenue and increase this to 95% by 2025, while also showing progressive installation of prepaid smart meters. They will also not be allowed to scrap consumer debt unless a smart meter is installed.

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Other conditions for Eskom debt relief

Other conditions include that water and electricity revenue must be ringfenced in a separate bank account and municipalities must also pay Treasury funds for indigent households into this fund. In addition, municipalities will not be allowed to borrow for three consecutive years and surrender their licences to Nersa if they fail to pay their Eskom debt.

When asked about how Treasury will deal with municipalities that fail to pay in the long term, Sadesh Ramjathan, director of budget analysis at Treasury, said although the courts granted relief to municipalities where Eskom cut power due to non-payment, Treasury hopes that the conditions will start to rectify these issues and develop a culture of payment.