Eskom could be forced to write off R70 billion that municipalities owe

National Treasury will demand that Eskom write off some R70 billion in outstanding municipal debt as part of the government taking over a part of the utility’s debt, Rapport reports.

The publication reported that it had seen an official letter being circulated to municipalities explaining how the debt would be written off over three years.

Municipalities will have to commit themselves to cutting off non-paying electricity users if they wish to qualify for the write-off.

As part of this, they must maintain an 80% electricity revenue collection rate, table a reasonable budget, and regularly pay their Eskom bills.

Should they fail to do so, National Treasury could take over the municipality’s electricity affairs or have the National Energy Regulator of South Africa (Nersa) suspend the municipality’s electricity distribution licence and award it to another entity to handle.

Municipalities will have to apply for the write-off every year before May.

Every year they meet the criteria, Eskom will scrap a third of their debt.

Immediate benefits include no longer being required to abide by any existing payment plans with Eskom and the utility ceasing any pending legal actions against the municipality.

In addition to the principal debt, any interest or penalties will also be scrapped.

The write-off programme is one of the conditions for national government taking over R254 billion of Eskom’s debt.

Only well-run municipalities will be able to meet criteria

Afriforum head of local government Morné Mostert told Rapport that it was insane to expect municipalities that were already faring so badly to achieve these conditions.

Mostert pointed out that revenue collection rates from electricity sales have declined year-on-year in struggling municipalities, so that trend was unlikely to be reversed.

The only municipalities he believed would be able to meet the requirements were those that were already keeping up with their Eskom bills.

Among the numerous municipalities that have had massive outstanding electricity bills is Emfuleni Municipality, which governs the towns of Vereeniging, Vanderbijlpark, and Sebokeng.

The municipality racked up R5.3 billion in debt since 2018, and despite multiple attempts by Eskom to get it to pay up, it failed to respond.

It also had a healthy revenue collection rate of about 90%, indicating that although most customers were paying their electricity bills, the municipality was not using the money to service the costs of getting power from Eskom.

In November 2022, the High Court in Pretoria ordered the municipality to pay R1.3 billion of this debt after Eskom took the matter to court.

Eskom said the overdue debt negatively impacted its liquidity, financial performance and sustainability, leaving it with no option but to borrow to meet its financial commitments.

Eskom has already started with execution steps against the municipality to recover some of the debt, including attaching the local authority’s bank accounts and moveable assets,

It also served the municipality with a summons for failing to pay its R3.4 billion bulk electricity supply bill.

Eskom and the municipality’s customers subsequently applied to the court to transfer the municipality’s electricity distribution license or part thereof to Eskom.

While Emfuleni’s debt is significant, the worst offender is Harrismith’s Maluti-a-Phufong, which owes Eskom R7.2 billion.

Putting Eskom and electricity users at loggerheads

Municipal debt has not only been a major financial challenge for Eskom, but has also become a big sticking point for residents who pay their electricity bills in certain dysfunctional municipalities.

In some cases, Eskom has tried to curtail power supply in these areas, leaving paying and non-paying customers with periods of power cuts over and above load-shedding and other planned outages or breakdowns.

Towns previously affected by these additional power cuts have included Witbank and Lydenburg in Mpumalanga, and Ventersdorp and Naledi in the North West.

However, the courts have repeatedly overturned or blocked the utility’s interventions.

In September 2021, the Constitutional Court denied Eskom’s leave to appeal a ruling by the Supreme Court of Appeal that blocked government service providers like Eskom from punishing end-users when the providers are in a debt dispute with another government institution.

The utility is first required to enter into an intergovernmental dispute resolution to resolve the payment issue, and the National Treasury had a responsibility to intervene to help resolve disputes.

It subsequently lost another case for reducing power supply to towns falling under the Lekwa and Ngwathe municipalities after they were found to be overusing electricity and racked up a debt of R2 billion.

In that case, it was found that Eskom had not made reasonable efforts to settle intergovernmental disputes as required by the Supreme Court’s previous ruling.

Its failure to do so resulted in an “unfolding human and environmental catastrophe”, which included a massive impact on sewage reticulation systems, affecting businesses, government departments, old age homes, hospitals and private citizens.

SOURCE:Eskom could be forced to write off R70 billion that municipalities owe (mybroadband.co.za)