South Africa ( SABC News )
Eskom leadership says the ever-increasing municipal debt is a risk to the entity’s financial sustainability.
Municipal debt owed to the power utility is around R10 billion per year.
Eskom’s leadership and the board appeared before Parliament’s Committee on Electricity and Energy to among others, give a briefing on its finances and performance.
Eskom CEO Dan Marokane says municipal debt is a worrying burden on the books.
“The intervention from Treasury is not yielding results we anticipated. It continues to grow, we will show you a list of municipalities, not to name and shame but to show you the scale of challenge. It does place risk in as far as financial sustainability of the business is concerned.”
Eskom says it has saved more than R16 billion in diesel compared to last year. Marokane says their performance has taken an upswing, with savings to show.
“Our financial and operational performance has improved. Eight months of no loadshedding comes at the back of serious improvement in generation recovery plan execution and savings in diesel costs when compared to last year.”
Understanding Municipal Debt
Municipal debt refers to the outstanding amounts owed by municipalities to Eskom for electricity supply. Many municipalities in South Africa have struggled with their own financial management, leading to high levels of unpaid bills. As of late 2023, reports indicate that municipal arrears owed to Eskom have reached alarming levels, with some estimates suggesting that this debt could be in excess of R50 billion (approximately $3 billion). This growing debt not only affects Eskom’s cash flow but also hampers its ability to maintain and invest in infrastructure necessary for reliable electricity supply.
Impact on Financial Sustainability
The increasing municipal debt poses a direct threat to Eskom’s financial sustainability. When municipalities fail to pay their debts, it creates a ripple effect throughout the entire energy supply chain. Eskom relies heavily on these payments to fund its operations, including maintenance of power plants and investment in new generation capacity. Without these funds, Eskom may struggle to meet its operational costs, which can lead to further load shedding and instability in electricity supply.
Moreover, the inability of municipalities to pay their debts can lead Eskom into a vicious cycle where it must borrow more money at higher interest rates to cover its operational shortfalls. This increased borrowing can further strain Eskom’s balance sheet and credit ratings, making it even more difficult for the utility to secure financing for future projects or improvements.
Recognizing the severity of this issue, both Eskom leadership and government officials have called for urgent interventions. Possible solutions include restructuring municipal debts or implementing stricter payment plans that hold municipalities accountable for their electricity consumption. Additionally, there have been discussions about improving revenue collection mechanisms at the municipal level and enhancing governance structures within local governments.
Furthermore, there is an ongoing debate about whether national government support is necessary to alleviate some of this burden on municipalities while ensuring that they fulfill their obligations towards Eskom. Such support could take various forms, including direct financial assistance or policy changes aimed at improving local government efficiency.
