Government and Eskom can ill afford to absorb Soweto’s electricity bills

Calls to quash Soweto’s nearly R5 billion Eskom debt strengthened this week when new Gauteng premier Panyaza Lesufi argued that this would aid development in townships. However analysts say succumbing to this pressure would have dire consequences for South Africa.

In a tweet directed at Finance Minister Enoch Godongwana, Lesufi said scrapping the debt that Soweto residents owe to Eskom would help reposition townships, informal settlements and hostels as centres of growth.

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.

— Panyaza Lesufi (@Lesufi) October 27, 2022

Lesufi’s comments come weeks after Godongwana announced the Gauteng provincial government and the national government’s commitment to settle Sanral’s debt.

It would not be the first time Soweto residents got a debt break on electricity bills. In 2020, R8 billion in overdue payments was written off in South Africa’s biggest township.

Government is also already taking over a portion of Eskom’s debt pile that currently sits at R400 billion; as much as R266 billion of Eskom’s debt will be taken over by government, Godongwana said in his mini budget statement last month.

Professor Bonke Dumisa, an independent economic analyst, said cancelling Soweto’s Eskom debt would be both wrong and continue a culture of non-payment in the country.

“There is no free lunch in this world,” Dumisa said, saying money owed to Eskom could be enough to be allocated to vital components of the country’s already-constrained budget.

“The money which the government could have used to effect service delivery, will be diverted, and hence reduce the level of service delivery,” he said. This would trigger service delivery protests, resulting in damage to infrastructure, which would then need to be repaired.

Wits Business School Professor Jannie Rossouw said if Soweto’s Eskom debt is written off, it would have to be carried somewhere else in the economy.

He added that neither Eskom nor the country’s fiscus could afford to absorb Soweto’s debt; either Eskom would record it as a loss or it gets passed on to other consumers who already pay for electricity.

“We also have to remember that there are other municipalities who are indebted to Eskom and why would it be morally acceptable to write off Soweto’s debt and not the debts of other municipalities?” Rossouw said.

For Lesufi, it’s all just a political ploy following his ascension to the Gauteng premiership position, Rossouw said.

“Lesufi made this remark … to try and improve the popularity of himself and of the ANC in Gauteng. It’s not immediately clear that Mr Lesufi had, at all, thought about the financial or economic implications of such a statement,” said Rossouw.

He added that President Cyril Ramaphosa’s statement in response to questions in parliament this week was also politically motivated.

Ramaphosa suggested that debt can be cleared under special conditions.

“It’s a political statement without any thought given to the economics or finances of the state,” Rossouw said.

“Of course, debt can be written off under special conditions, if one has an idea of where that debt could go to, or who will absorb the loss emanating from such a write off … Mr Ramaphosa gave no indication of who should absorb the loss from the debt,” he said.