Eskom, South Africa’s state-owned power utility, has issued a stark warning: the failure of municipalities to pay billions of rand in outstanding debts is hindering its recovery efforts, just as the nation nears the end of a decade-long struggle with blackouts that have hampered economic growth and deterred foreign investment.
Eskom CEO’s Concerns
“It’s a significant risk to our business,” Eskom CEO Dan Marokane told the Financial Times. “In many cases, they can afford it but haven’t prioritized paying Eskom.”
Marokane expressed hope that a firmer stance from the new government could help reverse the culture of non-payment among municipalities.
Unpaid Debt Threatens Financial Stability
Eskom’s unpaid municipal debt is escalating at a rate of R15 billion ($833 million) annually, according to Marokane.
This poses a serious threat to the utility’s plans to return to profitability after five disastrous years of power shortages and combined losses of R111 billion.
Recent Progress and Legal Action
While years of blackouts have discouraged investment, Eskom claims to be making progress and recently celebrated 100 days without load shedding.
To encourage debt repayment, the utility has initiated legal action against Johannesburg, Africa’s economic hub and wealthiest city, which is refusing to settle nearly R5 billion in unpaid power bills.
Johannesburg’s Default: A Dangerous Precedent
A court order on June 4 mandated Johannesburg’s City Power to pay R1.1 billion to Eskom, which argued that its inability to collect debts “poses a material risk of potentially catastrophic consequences.”
Marokane, speaking at a banking conference in Cape Town, revealed that the city’s appeal is scheduled for July 23. He cautioned that allowing Johannesburg, contributing 15% to South Africa’s GDP, to default on its debts could set a perilous precedent for less affluent municipalities.
Shifting Political Landscape
Marokane, who assumed his role in March, indicated that while Eskom may have previously refrained from cutting power to non-payers due to political concerns, “we are not there now – we’re very clear on the steps we need to take.”
Goolam Ballim, chief economist at Standard Bank, suggested that the ruling African National Congress (ANC) had historically tolerated non-payment to secure votes. However, the party lost its majority in May’s elections for the first time since apartheid ended.
New Government’s Firmer Stance
Ballim noted that the new coalition government appears to be taking a more assertive stance on unpaid bills to instill fiscal discipline in a country with stagnant economic growth.
Electricity and energy minister Kgosientso Ramokgopa, a close ally of President Cyril Ramaphosa, warned this week that if non-payment continues at the current rate, Eskom could be owed over R3.1 trillion by municipalities and individuals by 2050. He stressed the urgency of addressing the debt issue to prevent Eskom’s collapse.
Financial Losses and Debt Relief Challenges
Eskom confirmed last week that it anticipates a loss of R15 billion for the year ending March 2024, following a R23.9 billion loss the previous year. Municipalities owe Eskom R78 billion, but Ramokgopa acknowledged the difficulty in collecting the full amount.
Despite Ramokgopa’s insistence on debt repayment, other ANC politicians have created confusion by suggesting otherwise.
Panyaza Lesufi, premier of Gauteng province, which includes Johannesburg, had promised voters before the election to cancel historical debts owed to Eskom.
Calls for Accountability and Debt Relief Reform
Nico de Jager, a Gauteng legislator from the Democratic Alliance, criticized Lesufi’s stance, emphasizing the importance of paying for services used.
Marokgopa noted that while 72 municipalities applied for a debt relief scheme launched last year, only 4% have complied with its terms, highlighting the need for sustainable solutions to tackle municipal debt.