Eskom has taken a decisive step regarding defaulting municipalities, announcing on Thursday it has initiated a formal legal process that could lead to electricity supply interruptions or limits for 14 municipalities across the country.
Citing a “persistent rise” in municipal debt which has surpassed R110bn, the utility has turned to the Promotion of Administrative Justice Act (Paja) to begin a public consultation process, a necessary legal requirement to ensure transparency before any service interruptions are implemented.
Eskom said it is taking the step after exhausting all engagement channels under the Intergovernmental Relations Framework Act, which governs co-ordination between different spheres of government.
With the internal negotiations unable to resolve the municipal debt issue, the utility has begun issuing formal notices under the Paja. This provides affected parties with an opportunity to make representations before further action is considered.
The 14 affected municipalities were selected based on factors including failing to settle accounts for at least 18 months, failing to meet National Treasury’s debt relief conditions, or posing a “significant financial risk” to the utility’s overall stability.
“We have to address rising arrear debt to protect the operational stability we have restored and the financial discipline we have rebuilt in the first three years of our turnaround to deliver on our developmental mandate,” said Agnes Mlambo, Eskom’s acting group executive for distribution.
Eskom said it empathises with communities that may be affected, but argued that supplying electricity without payment is financially unsustainable
”Through the turnaround, we are enabling businesses to protect and create jobs and supporting strategic industries to remain competitive, which in turn enables communities to thrive,” Mlambo said.
Should the consultation process fail to produce a viable payment plan, Eskom intends to deploy two primary credit control measures to mitigate further financial loss.
The first measure involves scheduled interruptions, which would entail cutting power entirely during specific, predetermined times of the day to reduce overall consumption. Alternatively the utility may limit supply, a strategy designed to reduce the volume of electricity sent to a municipality so it aligns strictly with the payments received from that local government.
This approach ensures the utility is no longer providing electricity on credit when there is no reasonable expectation of payment.
Eskom said it empathises with communities that may be affected, but argued that supplying electricity without payment is financially unsustainable. The utility noted municipalities collect revenue from their own customers for electricity services but often fail to transfer those funds to Eskom, undermining its financial position.
The utility said the scale of municipal debt has broader implications for South Africa’s electricity reform agenda. According to Eskom, municipal arrears are delaying progress on the legal and operational unbundling of its distribution business, which is part of the country’s electricity reform agenda designed to enable new market entrants.
Eskom has invited stakeholders to submit written representations during the Paja consultation process. The utility said it will determine its next course of action once the submissions have been considered.
Business Day
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.