Municipalities owe Eskom R31.5bn

Eskom is defending its ‘foreclose’ on municipalities that owe it billions in overdue debt.

Over the past few months, the struggling power provider has not been afraid to show its ruthless streak in clawing back the R31.5 billion owed to it as at the end of August by some municipalities and has thought nothing about taking control of bank accounts and seizing assets.

The issue of rising municipal debt is one of growing distress for the state-owned power utility. It has seen this figure grow from R6 billion as at March 31, 2016, to R28 billion as at March 31 this year.

This growing liability has seen it take control of 139 farms owned by the Matjhabeng municipality in the Free State, and seize the bank accounts of several municipalities, which owes it hundreds of millions of rands.

Read: Eskom attaches 139 farms of FS municipal council

The Maluti-a-Phofung Local Municipality, which had its bank account attached in July 2020 and owes over R5 billion, has accused Eskom of negotiating in bad faith as it had reneged on agreements reached in an inter-governmental committee meant to sort out the issue.

The matter between Eskom and the likes of Maluti-a-Phofung are now being played out in the courts, but it and the other defaulting municipalities should not have been surprised by the power company’s hard stance.

Read: Eskom compared with Shakespeare’s Shylock – court

In Eskom’s 2019 annual report it already said: “Recently, we obtained a default judgment against Maluti-a-Phofung Local Municipality and have attached their movable assets in an attempt to recover amounts due. We have also started issuing summonses to municipalities as an alternative measure to recover outstanding debt. Summonses have been issued to a further 15 municipalities.”

This was after it had reached 51 payment agreements with defaulting municipalities by the end of March 2019.

The issue around municipal payments has hardly improved since then, with its 2020 annual report noting that “only 20 were being fully honoured, including only one of the top 20 defaulting municipalities”.

The whole picture

But the picture Eskom is sketching of the defaulting municipalities is not the whole picture, with some saying they are doing their bit despite tremendous difficulty.

“We are paying Eskom – it’s just we are unable to pay the billed full amount due to non-payment of services by the community because of the high unemployment rate,” insists Emalahleni city manager HS Mayisela.

Mayisela says given the economic difficulty in the Mpumalanga municipality, maintaining payments has been very difficult.

This was backed up by Emalahleni’s budget, which noted that service revenue target was reduced from R2 billion to R1.5 billion for the 2018/2019 period.

Read: ‘Eskom owes us R4.8bn’ claims beleaguered municipality

Mayisela says despite its own financial difficulty, it has removed illegal connections and is currently implementing “load reduction and shedding to the low and non-paying areas”.

Its efforts to get people to pay what they owe has come at a tragic price.

“As we implement our credit and debt policy in terms of cut-offs, our employees are attacked, and so far, we have suffered two fatalities and numerous injuries.”

Emalahleni is not the only municipality committed to paying what’s owed. Modimolle-Mookgophong Local Municipality mayor Marlene van Staden says the Limpopo municipality has kept to its payment arrangement with Eskom; by August, it had paid the utility about R100 million the 10 preceding months.

Debt on debt

There is also the not-so-small matter of the interest Eskom charges on overdue accounts.

“Arrear debt owed to Eskom as at 31 August was R31.5 billion. [Of which] R6.8 billion relates to interest charges accumulated over the years due to non-payment,” said the utility in response to questions sent to it.

Eskom says given the legislation it operates under, there is little room for it to show leniency.

“Eskom is compelled by the Public Finance Management Act to make every effort to collect all revenue due to it.”

It has however tried to show some lenience to struggling municipalities.

“As from July 2017, Eskom reduced the interest rates charged on municipal overdue debt as well as increased the payment days from 15 to 30 for struggling municipalities to make it easier for these municipalities to settle their debt owed to Eskom. Eskom also allocated the payments to capital first before interest.”

Not an Eskom problem

The issue around the monies owed to Eskom is not actually an Eskom problem, but rather a municipal revenue collection problem.

Municipalities are heavily reliant on reselling Eskom’s electricity as a way to generate revenue. But when mismanagement undermines their own ability to collect what is due or suffer the fallout of an economic shock like the Covid-19 crisis, they have few options when it comes to making ends meet.

Also not helping the situation is that neither the municipalities nor Eskom have the power to push through tariff increases; both have to depend on a rate increase imposed on them by energy regulator Nersa.

The national government has not provided much guidance when it comes to setting up new revenue streams for municipalities or sorting out what’s owed to Eskom.

The International Monetary Fund, in its 2018 Article IV country report, points out that the minimising of municipal reliance on electricity revenue is one of the structural reforms needed to accelerate economic growth.

Alphabet soup

This issue continues to be unresolved despite the formation of the Inter-Ministerial Task Team (IMTT), which according to Eskom’s 2020 annual report was “established to address the systematic and structural issues behind municipal debt as well as related operational challenges”.

The IMTT could not achieve this goal. “Regrettably, there has been no significant progress on the IMTT recommendations during the year.”

There was no improvement by the IMTT’s successor, the Inter-Ministerial Committee on Service Delivery (IMCSD) led by deputy president David Mabuza.

The IMCSD has fallen away and it’s now up to the Eskom Political Task Team (PTT) – also chaired by Mabuza – to sort the matter out.

The PTT now has the job of implementing the IMTT’s recommendations. This amounts to the rollout of the National Payment for Services Campaign, piloting the installation of prepaid smart meters, and, with support from National Treasury, considering municipal budget compliance to ensure that current accounts are paid.

For its part, there is almost an understandable sense of melancholy when Eskom notes in its annual report that the latest effort on the part of the state to resolve the debt matter has yet to show signs of progress.

“We are fully participating in the work of the PTT, although improvements from these initiatives are yet to be seen.”