EDITORIAL | Municipalities are not going to come to Eskom’s pity party

Eskom CEO Dan Marokane is wildly optimistic if he thinks Eskom is going to recoup the R78bn owed to the power utility by municipalities.

With arrears growing by about R15bn a year, the situation will continue to deteriorate until government steps in and mediates a workable solution.

Marokane said this week that Eskom cannot afford to write off the debt and was prepared to go to court to compel municipalities to pay. But the reality is that not even a court judgment is likely to kick-start a renewed sense of urgency by local government to clear their debt. Most municipalities are either broke, poorly run, or both. And a cost of living crisis is only worsening a culture of nonpayment among end users.

In her most recent Municipal Finance Management Act report for 2021-2022, released in May 2023, auditor-general Tsakani Maluleke noted that the financial health of municipalities continued to deteriorate, “partly because increased economic pressures meant that consumers were not paying their bills, but also because of poor financial management”.

She said this directly affected municipalities’ ability to deliver services to communities.

“Specifically, the debt owed to Eskom and water boards remains high and continues to increase due to interest and penalties incurred on late payments. If these debts are not paid, communities are left without access to basic services such as electricity and water. This also makes it difficult for businesses to operate optimally, which further affects the struggling economy.”

Her report painted a dire picture:

• of the country’s 257 municipalities, only 38 received a clean audit, down from 41;
• nearly three in four didn’t have proper financial controls in place; irregular spending ballooned to R136bn;
• only two of the eight metros (Cape Town and Ekurhuleni) got a “clean audit”;
• fruitless and wasteful expenditure more than doubled to R4.7bn; and
• in 27% of the municipalities there was “significant doubt” that they could continue operating much longer.

The latest Ratings Afrika municipal financial sustainability index report — a ranking of South Africa’s 104 largest local municipalities and eight metros for the year ended June 2023 — found most municipalities continue to be run at deficits, with insufficient funds to deliver key services, with the key reasons being “gross financial mismanagement and unsound governance”.

So municipalities are definitely not going to come to Eskom’s pity party. And a bailout from Treasury is unlikely, given that it has already granted Eskom a R254bn debt-relief package. A bailout could also backfire by giving the impression that municipalities can escape accountability and re-enforcing a culture of nonpayment.

But Treasury has made attempts to get the situation under control, launching a debt relief programme in May 2023 in which a municipality’s arrears for bulk electricity would be written off if it did not default on current monthly payments, among other conditions. But the move has not been a success, with arrears continuing to grow. Some 72 municipalities applied for the debt relief programme and 70 were approved. But only 10% have maintained the conditions of the deal, according to Eskom CFO Calib Cassim.

So while South Africans celebrate 100 days of no load-shedding, we should be mindful that appearances can be deceiving. We’re not out of the woods yet. Because many municipalities have for years not invested in the required maintenance, South Africa still stands a very real chance of continued rolling blackouts due to collapsing infrastructure.

This week Eskom announced that it will resume load reduction in some areas due to network overloading. Load reduction is implemented in areas where demand is higher than the infrastructure is able to handle and, for those affected can be even worse than load-shedding, with blackouts at times lasting much longer than two hours.

There is no quick or easy solution for the big, ugly mess Eskom finds itself in. But it is a looming disaster that government needs to address urgently if we have any hope of putting the country's power supply crisis behind us.