Municipalities in SA struggle to pay Eskom, adding to economic woes

From R44.8 billion in March last year, to R56.3 billion on 31 December and R63 billion in August, municipal debt to Eskom is a runaway train and now increasing at a rate of around R2 billion a month, said an expert.

At the end of August, the top 10 local municipalities owing Eskom, excluding metros, (listed from the highest to the lowest) included:

• Emalahleni (Mpumalanga);
• Maluti-a-Phofung (Free State);
• Emfuleni (Gauteng);
• Matjhabeng (Free State);
• Govan Mbeki (Mpumalanga);
• Lekwa (Mpumalanga);
• Ngwathe (Free State);
• City of Matlosana (North West);
• Thaba Chweu (Mpumalanga); and
• City of Mbombela (Mpumalanga).

How much each municipality owed was not disclosed.

Debt relief programme

Eskom noted some of these municipalities had been approved or were in the process of getting approval from National Treasury (NT) for the municipal debt relief programme.

“As such, those municipalities would need to adhere to the NT conditions to remain on the programme, which includes paying their current accounts,” Eskom said.

In May, it said municipal Eskom debt was a material risk to the power utility and government’s numerous attempts to rescue the municipal debt spiral “has not achieved the desired results [with] no visible improvement”.

Chief economist at Efficient Group Dawie Roodt said local authorities were a major challenge in South Africa and the total outstanding debt of local authorities to Eskom was in a region of about R70 billion. It increased at a rate of about R2 billion every month.

ALSO READ: Tshwane owes Eskom R3.2 billion, mayor says load shedding affecting city’s funding model

“The local authorities are collapsing,” he said.

“More than 70% of the local authorities are financially just not viable anymore and that will eventually become the problem with the minister of finance.

“We need to remember that state-owned enterprises have also mostly collapsed and they will also become a problem for the minister of finance.

“In the meantime, the minister’s finances have deteriorated quite sharply.

“I’m afraid this whole thing is adding up and we are heading for a serious financial crisis in South Africa.”

Incompetent and corrupt management

Roodt said the reason this had happened was because of incompetent and corrupt management, mostly under the leadership of the ANC.

“So the chickens, as I say, are coming home to roost. We are heading for some serious trouble.”

In widespread media reports this year, it was reported that the top five municipalities owing Eskom included:

• Maluti-a-Phofung local municipality in the Free State owed the most, with R7.2 billion of debt;
• Second was the Emalahleni local municipality in Mpumalanga, which owed the state-owned power utility R7.1 billion;
• Emfuleni local municipality in Gauteng took the third spot, owing R5.8 billion;
• Free State local municipality, Matjhabeng was in debt to Eskom to the tune of R5.2 billion;
• With R3.6 billion of debt, the Govan Mbeki local municipality in Mpumalanga was fifth on the list.

ALSO READ: Court ruling on Emfuleni and Eskom a sign that municipalities unable to deliver services

Energy economy specialist Lungile Mashele said the big issue was nonpayment to municipalities themselves because R305 billion was owed by residents.

According to Mashele, there was a chronic culture of nonpayment and nonrecovery in municipalities which had resulted in a deteriorating financial position.

Mashele said municipalities needed to improve collections.

Collections were hampered by:

• Corruption by staff;
• Incorrect billing systems;
• Inefficiencies by municipalities; and
• Illegal connections and reconnections.

Tshwane and Ekurhuleni owe R4.7 billion

Eskom this week revealed the City of Tshwane and the City of Ekurhuleni – two metro municipalities – owed it a combined R4.7 billion as of 31 August.

Tshwane owed Eskom about R3.2 billion, which had accumulated over July and August this year due to erratic payments.

The City of Ekurhuleni’s debt was currently just less than R1.5 billion.

It was understood the failure to honour its obligations risked Ekurhuleni being placed under administration for the first time.

ALSO READ: SOE downfall: ‘Gordhan should be fired, his department scrapped’

Eskom said payment patterns by both municipalities had deteriorated to concerning levels, which further threatened Eskom’s liquidity, financial performance and sustainability.

“In addition to that, the strike action in Tshwane has resulted in a lack of service delivery that will impact their operations but will also lead to a payment boycott as some residents are threatening,” Mashele said.

“Also, Tshwane has the ‘unfortunate’ burden of having lots of government buildings and embassies, which contribute to the problem of nonpayment.”