Eskom chair Mteto Nyati has warned that runaway municipal debt, which has topped the R100bn mark, risks delaying the unbundling of the utility’s distribution unit, potentially putting into question the viability of the distribution arm.
In his letter to stakeholders published in Eskom’s 2024 annual report, Nyati said “unsustainable” levels of municipal arrears debt and electricity theft were the issues keeping the board up at night.
“The board is concerned about the lack of compliance with the municipal debt relief programme, given that the conditions of the programme prohibit Eskom from pursuing action against non-compliant municipalities,” he said.
Municipalities owe Eskom a staggering R109.4bn, more than an 18-fold jump in unpaid electricity bills since 2015, when they owed just less than R5bn.
Choking under its own debt pile of more than R400bn, Eskom received a R254bn relief package from the Treasury in 2023 in a programme that enjoined local government to pay their dues to Eskom.
The municipal debt challenge has the potential to jeopardise the distribution separation as well as threaten the financial viability and sustainability of the future distribution industry.
— Mteto Nyati, Eskom chair
“We must find solutions to these challenges. We have to collaborate with government, the municipalities themselves and society as a whole to ensure that this culture is addressed and that we are paid for our product, with all participants in the electricity value chain paying their rightful share,” Nyati said.
“However, the separation of the distribution business is lagging, driven in part by the knock-on effect of delays in the transmission process and other external dependencies.
“The municipal debt challenge has the potential to jeopardise the distribution separation as well as threaten the financial viability and sustainability of the future distribution industry. It is imperative that we address this challenge.”
Last year Eskom ramped up a comprehensive restructuring process that was started in 2019, to unbundle the vertically integrated utility into three distinct companies of transmission, distribution and generation.
The National Transmission Company South Africa (NTCSA) began operation in July, with the objective of raising billions of rand to build 14,000km of new transmission lines in the next decade.
Distribution in South Africa is now shared between 165 licensed municipalities and Eskom.
South Africa’s Transmission Development Plan 2022 requires investment in strengthening the national transmission system over the next 10 years with 14,218km of transmission lines and 122GVA of transformer capacity, equating to 170 transformers.
Eskom CFO Calib Cassim in the annual report said due to the low level of compliance, arrear municipal debt continued to escalate to unsustainable levels, growing by 27% to R74.4bn at year-end — R2bn more than the R76bn received by the entity in government debt relief in the year to strengthen the balance sheet and support its going-concern status.
“More recently, we’ve observed a concerning trend of nonpayment or late payment by metros in Gauteng, which typically used to pay on time.
“We’ve requested the National Treasury to engage with non-compliant municipalities to correct their behaviour or to remove them from the programme, so we may resume legal proceedings and debt recovery processes,” Cassim said.
The annual report also shows that an increase in energy losses caused by electricity theft, illegal connections, meter tampering, illegal vending, theft and vandalism of network equipment, as well as errors, resulting in revenue loss.
“This is worsened by regulatory uncertainty and below-cost-reflective tariffs arising from a regulated tariff structure that leads to misalignment between how costs are incurred and recovered.
“Furthermore, distribution’s financial sustainability is compromised by escalating arrear debt due to the nonpayment of municipal bulk accounts, as well as decreasing sales volumes,” the report reads. “Reduced funding and capital investment may lead to an inability to sustain network performance within regulatory norms.”
Besides ballooning municipal debt, Eskom also has to contend with “non-technical” losses arising from electricity theft, illegal connections, tampering and bypassing of electricity meters, as well as the purchase of illegal electricity tokens, known as ghost vending.
These losses came in at R6.4bn in the year ended September, up from R5.6bn in the previous year. Ghost vending comprises illegal vending from offline credit dispensing units, and online vending fraud stemming from fraudulent activities on the Eskom vending system, “possibly in the hands of Eskom staff managing and operating the platform”.
“A recent investigation uncovered the bulk generation of illegal prepaid tokens on Eskom’s online vending system. It is suspected that collusion between Eskom staff and illicit operators breached security controls to facilitate the generation of fraudulent prepaid electricity tokens,” the report reads.
“The means by which the tokens are sold in the market has not been established, as illicit tokens are being traded in many ways. This creates an active market for the illegal sale of prepaid electricity tokens at reduced prices in comparison to tokens sold by Eskom and its registered vendors.”
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