Soweto Eskom debt: Lesufi’s idea ‘could set dangerous precedent’ – economists

Gauteng premier Panyaza Lesufi wants Eskom to “forgive” Soweto’s R5-billion electricity debt – after R8 billion was written off in 2020 … but he could be setting a dangerous precedent, say economists.

Lesufi’s idea has been welcomed by some Soweto residents, who say they are struggling financially and cannot afford to pay historic debt.

The government has made a commitment to pay between R136 billion and R266 billion of Eskom‘s R400-billion debt, but as of 30 September, Soweto still owed the embattled power utility nearly R5 billion.

Panyaza’s plea

In a series of tweets, Lesufi said debt forgiveness was needed for townships, informal settlements and hostels to develop.

Minister Godongwana we truly appreciate how you respect negotiations. Can we safely assume that the Soweto Eskom Electricity debt and that of other townships is also scrapped as per our intensive lobby? To start developing townships the debt must also go.

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Koeberg Unit 1 granted licence extension to operate until 2044

— Panyaza Lesufi (@Lesufi) October 27, 2022

“[Finance] Minister Enoch Godongwana, we truly appreciate how you respect negotiations. Can we safely assume that the Soweto Eskom electricity debt and that of other townships is also scrapped as per our intensive lobby? ” he said.

“Our argument remains, if Eskom debt is taken over by the central government, what our people owe Eskom in townships, informal settlements and hostels must also be scrapped. We need to reposition our townships, informal settlements and hostels so they can be centres of growth.”

R8 billion written off

Eskom had already written off billions in Soweto – in 2020 alone it wrote off nearly R8 billion in overdue debt.

‘Not a good idea’

Chief economist at Efficient Group Dawie Roodt said this was not a good idea. “Even if the finances work, this might create a horrible precedent, which is that people will not start paying,” he said. “They are never going to pay.”

Roodt said in the case of e-tolls rates, almost everyone stopped paying and in the case of electricity, most people were paying except for Soweto and other places.

“We cannot compare it to toll rates. This will send a message that even if you do not pay, then someone will write off the debt,” he said.

Roodt added in terms of financial implications, Treasury had no budget for this.

“I do not think Eskom will get money in any event, but Treasury certainly does not have the budget and Eskom, as we know, are financially bankrupt,” he said.

Residents speak out

A resident from Soweto, who requested to remain anonymous, said although she was happy about the possibility of the debt being written off, it would not change anything.

“The electricity situation in Soweto is very bad. Besides load shedding, we could go weeks and months without electricity and that is because we are owing,” she said.

“Eskom cannot fix these problems because Soweto owes.

“If the debt is written off, it may be a lot easier but after a year or two, the situation will go back. People just do not want to pay.”

She said the new prepaid system was a good initiative as other people in various areas complied with it.

“This shows if we were to pay properly and legally for electricity, everything would run smoothly. But, unfortunately, it is not the case here.”

However, another resident from Soweto, Mbulelo Mpongwana said such write-offs were long overdue.

Mpongwana said Eskom was writing off debt for Soweto residents who agreed to move on to the new green box prepaid system.

“This programme is accelerated by blow-ups of transformers and as a condition for their replacement, residents must sign up for new prepaid system which then writes off old debt,” he said.

“Also, with the current high unemployment rate and the R350 grant from government, no one can afford to pay off historical debt.”

Municipal debt was one of the significant challenges to Eskom’s balance sheet, with overdue debt as of 31 August of more than R51 billion.

Expert view

Antswisa Transaction Advisory chief executive and chief economist Miyelani Mkhabela said it was a “stunning foresight” for the “township revitalisation” strategy of the Gauteng provincial government to request Eskom to scrap electricity debt for Soweto and other townships.

Mkhabela said the Gauteng provincial department of economic development had gazetted the Gauteng Township Economic Development Act, which aimed

to reposition townships as economic development zones, or frontiers with benefits for infrastructure and industrial development.

“It will be beneficial for the Eskom electricity debt for townships to be scrapped on condition that all households transition to new prepaid plans for efficient collection and municipality rates and taxes sustainability,” he said.

“In managing for societal value, the new owners of the township households inherently found themselves in electricity debt and the owners are predominantly unemployed, as unemployment and poverty is the most complexity facing the South African economy.”

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