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Africa|Energy|Eskom|Financial|Flow|Services|Flow
Africa|Energy|Eskom|Financial|Flow|Services|Flow
africa|energy|eskom|financial|flow-company|services|flow-industry-term

Still no solution

20th October 2023

By: Terence Creamer

Creamer Media Editor

     

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For decades now, the issue of the debt owed by municipalities to Eskom has not only remained an intractable problem but one that has grown in both scale and its potential to create financial jeopardy for both the utility and the national fiscus.

There have been countless initiatives by Eskom to tackle the problem – some cooperative in nature, others far less so, including the naming and shaming of large metropolitan defaulters and even some asset seizures.

Likewise, there has been no lack of government-led initiatives, the intensity and effectiveness of which have tended to ebb and flow with election cycles.

The most recent initiative is the Eskom Municipal Debt Relief Support Programme, which was announced in the February Budget as part of the R254-billion debt-relief package that was extended to the utility.

The programme is designed to enable Eskom to write off municipal debt, which stood at R58.5-billion at the end of March, with 136 of the country’s 257 municipalities in arrears – the figure has since climbed to well above R65-billion.

It is no dripping roast, however, with 14 strict conditions, including a minimum collections stipulation, the ringfencing of the Eskom account which should be paid first, a restriction on borrowings, and a potential revocation of a municipality’s distribution licence should it fail to comply.

These conditions, together with the complexity of the programme, is probably why only 28 municipalities had been given approval by the National Treasury to participate by the time of the initial closing date of the end of September.

Although the National Treasury announced that the closing date had been extended to October 31, that nine further applications were being assessed and that 25 additional applications were currently serving before respective provincial treasuries, it is likely that participation rates will remain low.

To be clear, the programme is the most well-conceived intervention to date and should be supported. It is designed to introduce the type of discipline that should be routine at any well-functioning municipality and extends the not insubstantial carrot of a full debt write-off simply for doing the right things consistently over three years.

The lack of uptake is indicative that many municipalities have either strayed so far from good operational and financial practice to make it impossible for them to participate, or that many municipalities believe another, less onerous deal, is still possible.

Whatever the reason, it means the Eskom municipal debt problem will remain and will continue to hang around the necks of executives at the restructured Eskom entities, as well as the future administration, which could well take the form of coalition governments at national and provincial levels.

What is also clear is that South Africa has not gained any last-mover advantage from being an international energy transition laggard. Experience elsewhere shows how crucial it is to ensure that electricity tariffs are structured such that both energy and services are properly costed and remunerated. Sadly, this restructuring has been so slow domestically as to make falling electricity revenues a major municipal risk.

Edited by Terence Creamer
Creamer Media Editor

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