As it happened: 10 municipalities owe Eskom R7.5bn in overdue debt

Eskom calls for drastic action to solve municipal debt  

Municipal debt has increased to unsustainable levels and needs drastic intervention, Eskom’s distribution executive Ayanda Noah explained on Tuesday.  

She was giving an inter-ministerial task team update on constitutional, structural and systematic challenges in electricity reticulation.  

Noah said intervention by National Treasury and other national departments is required to “stop the bleeding” and to assist Eskom’s financial situation and help the municipalities to become sustainable.  

“This is to include putting municipalities under administration,” she said.

10 municipalities owe Eskom R7.5bn in overdue debt  

Ten municipalities owe Eskom R7.5bn in overdue debt, Eskom’s distribution executive Ayanda Noah explained on Tuesday.  

She was giving an inter-ministerial task team update on constitutional, structural and systematic challenges in electricity reticulation.  

She said total municipal overdue debt at the end of August was R11.245bn. There was an increase of R171m in overdue debt during the month of August.  

She explained that there are 68 municipalities that are overdue by more than R10m.  

Three provinces contribute R8.983bn of this overdue debt: Free State, Mpumalanga and North West.

Municipalities owe billions for power, water and trade  

As of June 30, municipalities owed R43bn to creditors for power, water and trade.  

National Treasury revealed this while giving an inter-ministerial task team update on constitutional, structural and systematic challenges in electricity reticulation.  

Treasury said municipalities owe Eskom R16bn, water boards R6.8bn and trade creditors R11.9bn.  

It said the trade creditors are often small businesses, meaning the non-payment could be killing jobs.  

Treasury said municipal debt is growing, exacerbated by the culture of non-payment.  

“Debtors at R128.4bn is greater than the total local government grant allocation of R111bn,” it said.  

Households owe municipalities R83bn; businesses owe them R27bn and organs of state owe them R7.4bn.  

Treasury said organs of state should not owe any money.

Huge pressure for municipalities to develop business models for electricity - Van Rooyen

Cooperative Governance and Traditional Affairs Minister Des Van Rooyen said there is huge pressure for municipalities to develop business models for generating, transmitting and distributing energy.  

Van Rooyen was speaking at the Association of Municipal Electricity Utilities (AMEU) 66th Convention held in Nelson Mandela Bay Metro on Monday.  

“A large capital investment in power utilities by municipalities needs to be looked after through proper maintenance and care taken of these installations.”  

Regarding developing business models, he said: “We hope that working with institutions like the South African Local Government Association (Salga) would be beneficial as they would advise on how to move the process forward.   

“Pricing models are already changing and Eskom is focusing on rationalising the tariff models currently in use,” he said.  

Van Rooyen said it will be important for municipalities to be proactive and adjust the pricing models for distribution of energy to their consumers within their licensed area.  

“Government acknowledges that municipalities are hampered by vacant positions for qualified technicians and engineers, hence the Capacity Development programme under MISA (Municipal Infrastructure Support Agent), which addresses this through training of artisans, technicians and engineers,” he said.  

Although much research has been undertaken in the provision of alternative energy sources, (i.e. solar PV panels etc.) leading to the development of reliable technology, Van Rooyen cautioned delegates on the dynamics of power distribution in South Africa, which he said is in a fast changing phase with major changes to the way distribution was done in the past.   

Van Rooyen emphasised that this will have to be implemented to keep up with the demand for technology driven systems and procedures.     

Municipalities’ Eskom debt is getting worse - Salga  

The South African Local Government Association (Salga) said things are getting worse regarding electricity reticulation in the country.  

Municipalities owe Eskom R11bn and this is escalating, Salga showed in a presentation at parliament.  

“Some may not come out of the Eskom debt situation without any support,” it said.  

“Municipalities owed over R116bn and most of it is irrecoverable.   “Most, if not all, municipalities are grossly under skilled.  

“Theft and infrastructure vandalism is at a record high, costing the economy over R6bn annually.”  

Salga said that Eskom is making the process to find a solution complicated because they keep changing chief executives. It brings inconsistencies, Salga said.

Writing off of Eskom historical debt needs policy intervention

The Department of Cooperative Governance and Traditional Affairs said the writing off of historical debts of municipalities raised by the South African Local Government Association (Salga) needs policy intervention.  

The department was giving an inter-ministerial task team update on constitutional, structural and systematic challenges in electricity reticulation.  

The Department of Cooperative Governance and Traditional Affairs explained that the following matters were approved by the board for implementation from 1 July:

- Reducing the interest rate charged on overdue municipal bulk accounts from prime plus 5% to prime plus 2.5%.

- Payment terms being extended from 15 days to 30 days for municipal accounts.

- Payments received from municipalities being allocated to capital first then interest.  

“The rationalisation of municipal tariffs from 11 to three has been approved by the Eskom board and will be submitted to Nersa,” its presentation showed.  

Municipalities point to ‘executive authority’ issue over electricity supply  

The Department of Cooperative Governance and Traditional Affairs said while municipalities have executive authority to administer the reticulation of electricity, “executive authority” is not defined in the Constitution.  

The department was giving an inter-ministerial task team update on constitutional, structural and systematic challenges in electricity reticulation.  

The task team is made up of the departments of Cooperative Governance and Traditional Affairs, Public Enterprises, Energy and Finance, as well as the South African Local Government Association (Salga) and Eskom.  

The Department of Cooperative Governance and Traditional Affairs said that municipalities are concerned that their constitutional authority is undermined by Eskom.  

“They see Eskom as a service provider which provides a service (electricity reticulation) that a municipality must provide.  

“It does so as a public company (regulated by company legislation) on the strength of a licence issued to it by Nersa.  

“In the absence of contracting and regulatory mechanism (SDAs) between Eskom and municipalities, municipalities are unable to levy surcharges in Eskom supply areas, municipalities are unable to exercise credit control in Eskom supply areas, there is a lack of tariff parity between municipal supply areas and Eskom supply areas, and there are conflicts over supply areas,” it presentation explained.          

Eskom electricity ‘throttling’ under spotlight  

Eskom is meeting parliamentarians on Tuesday to discuss its policy of cutting power to municipalities who have defaulted on their payments.  

The meeting of the Portfolio Committees on Cooperative Governance and Traditional Affairs (COGTA) will include Eskom, South African Local Government Association (Salga), and National Treasury. The portfolio committees on Public Enterprises and Finance have also been invited, explained Kevin Mileham, Democratic Alliance MP on Monday.  

Mileham had written to the committee’s chairperson, Mzameni Mdakane, asking for an urgent meeting to discus his “concern about those municipalities which are currently experiencing ‘throttling’ of electricity supply as a result of their failure to adhere to payment agreements with Eskom,” he said in a statement.  

“It is grossly unfair that residents in the affected municipalities in Free State, Gauteng, Limpopo, Mpumalanga and the Northern Cape be disadvantaged, through no fault of their own, due to their municipality’s inability to meet Eskom’s onerous financial arrangements,” he said.  

He said the DA called on affected councils to ring fence income generated by electricity sales for the sole purposes of paying the amounts owed to the power utility as well as for the maintenance of electrical infrastructure.  

“The failure of municipal managers and, ultimately, mayors in the affected municipality to use monies - paid by residents for electricity consumed – to settle Eskom debts lies at the heart of the crisis, and these individuals should be held personally responsible.

“However, residents cannot be cut off as a result and Eskom has a responsibility to reach a workable solution with these municipalities.  

“We look forward to engaging with the relevant departments and entities tomorrow, and hope to find a workable solution.”