Eskom's municipal debt plan stalls as R119bn bill keeps growing

Eskom has confirmed that no prepaid electricity agreement is in place with the Inxuba Yethemba Local Municipality in Cradock, and that none of the 14 municipalities placed on terms in March has concluded a distribution agency agreement with the utility. Municipal debt owed to Eskom stood at R119 billion at the end of June, the latest figure the utility has released.

As The Citizen reported on 21 September, the prepaid deal previously announced for Inxuba Yethemba has not materialised, and neither National Treasury nor the Department of Cooperative Governance and Traditional Affairs has provided clarity on progress towards concluding lawful Distribution Agency Agreements.

What Eskom asked for

In March, Eskom notified 14 municipalities that their electricity supply could be cut off unless they settled what they owed. They are Ekurhuleni metro, Dr Beyers Naudé in Graaff-Reinet, Inxuba Yethemba in Cradock, Nala in Bothaville, Nketoana in Reitz, Masilonyana in Theunissen, Ngwathe in Parys, Mpofana in Mooi River, Govan Mbeki in Secunda, Kgetlengrivier in Koster, Mamusa in Schweizer-Reneke, Thembelihle in Hopetown, Kai !Garib in Keimoes, and Renosterberg in Petrusville.

The utility offered three alternatives to being cut off. A municipality could appoint Eskom as an agent to take over its electricity distribution function, including collecting payments from consumers, with that money paid into Eskom’s bank account rather than the municipality’s. It could allow consumers to pay Eskom directly. Or it could switch to a prepaid system, under which the municipality receives only the electricity it can pay for.

In May, Eskom said there had been marked progress since March. It reached a payment agreement with Ekurhuleni, while Inxuba Yethemba agreed to switch to prepaid. Nine municipalities, under pressure from National Treasury, adopted council resolutions to implement a distribution agency agreement. Dr Beyers Naudé, Kai !Garib and Mamusa had not responded, and Eskom issued them final notices.

The legal process that was not followed

Dr Beyers Naudé then obtained a court order preventing Eskom from cutting supplies to towns in the municipality before the legally prescribed process for outsourcing a municipal service had been followed. That process includes an investigation into whether the municipality can provide the service itself and, if not, a tender process and a feasibility study. The service cannot simply be transferred to Eskom without giving other potential providers a chance to win the contract, and the process can take months.

National Treasury set a deadline of 1 September for municipalities to appoint Eskom as an agent. Cogta issued a guideline for an expedited process to meet the legal requirements. The South African Local Government Association asked for an extension. On the eve of the deadline, Treasury had not answered. The date passed without a single agency agreement being concluded.

Eskom says it cannot comment on progress in each municipality. In a statement issued after enquiries, it said there is currently no prepaid electricity agreement with Inxuba Yethemba, that it has issued a notice proposing one, and that the municipality has been asked to respond by 22 September. Numerous engagements on settling the outstanding debt have taken place, but no agreement has yet been reached.

Cogta spokesperson Pearl Bonqose acknowledged receipt of questions sent on 27 August but has not responded.

Why this matters beyond the meter

Municipal debt is not an accounting problem that stays in a ledger. Eskom described it as the biggest threat to its finances when it released results for the year to 31 March, and the utility’s own balance sheet is the mechanism through which it reaches households. A prepaid arrangement of the kind proposed for Inxuba Yethemba would mean residents receive only the electricity the municipality can pay for, which can leave them without power for periods.

The legal obstacle is the same one that has slowed service delivery partnerships across the country. Outsourcing a municipal function requires a capacity assessment, a feasibility study and a tender, and those steps exist to protect public money. Skipping them invites exactly the kind of litigation now before the courts.

AfriForum is challenging the legality of the distribution agency agreement concluded between the Merafong municipality in Carletonville and Eskom. The indications are that Merafong did not follow the prescribed process. The Ditsobotla municipality in Lichtenburg has also recently appointed Eskom in this manner, apparently also without complying with the law.

The next concrete step is Inxuba Yethemba’s response to Eskom’s prepaid proposal, due on 22 September.

Source: The Citizen, Are Eskom’s solutions for municipal debt faltering?