Municipal debt relief ‘will leave SA worse off’

The National Treasury announced on Tuesday that it has extended the deadline for municipalities to apply for the Eskom municipal debt relief support programme for one month to the end of October.

This is to allow municipalities more time to apply for the programme and to process applications still with provincial treasuries.

Debt owed by municipalities to Eskom has escalated by about R4bn in the current financial year and now stands at about R64bn, electricity minister Kgosientsho Ramokgopa told the media on Monday. “There is no sign of that increase abating anytime soon,” he said.

Eskom has previously said debt owed by municipalities could increase to R68bn by end-March 2024 unless there is an intervention by the state.

The debt relief programme was launched in May and it gives municipalities the opportunity to have their Eskom debt written off systematically over a period of three years. To qualify, municipalities have to comply with 14 financial management and other conditions, which include keeping up with current account payments to Eskom.

More than half of the 257 municipalities in the country have defaulted on their Eskom bills. The Treasury said at the end of March 136 municipalities were in arrears.

Escalating

By September 22, 37 municipalities had applied to be part of the programme, the Treasury said. “Twenty-eight of the 37 have been approved, with nine of them still being assessed. There are 25 additional applications resting with the respective provincial treasur[ies] for submission for approval.”

The escalating municipal debt poses significant risks, including undermining the liquidity of Eskom, Ramokgopa said. “If Eskom is not able to collect money owed by municipalities, this creates a major hole in its revenue, which undermines Eskom’s ability to invest in improving generation, transmission and distribution.”

Municipalities suffer similarly due to nonpayment by users. This leaves a “dent” in their revenue, making it difficult for municipalities to use income from electricity sales to cross-subsidise the delivery of social infrastructure such as the building of clinics and local roads.

Cas Coovadia, CEO of Business Unity SA (Busa), said any intention to write off municipal debt owed to Eskom has to be accompanied by some compensation to the power utility. “The impact on Eskom’s balance sheet that such a write-off would have will be significant and will erode Eskom’s ability to raise debt for critical infrastructure and other priorities.”

The longer-term issue, said Coovadia, is the viability of some municipalities and the serious lack of capacity in many municipalities, worsened by persistent corruption.

Writing off debt owed by municipalities now would not solve the root problem, which is the “culture of nonpayment”, said Busisiwe Mavuso, the CEO of Business Leadership SA and a former Eskom board member.

Municipal debt relief could end up being a useless exercise if there is no “fundamental change” in the behaviour of municipalities that will ensure that they keep up with payments in future.

“It doesn’t matter whether the debt that is written off is absorbed by Eskom or Treasury, at the end of the day we are worse off as a country. Writing off this debt will only plunge us into further economic turmoil.”

Mavuso said Eskom is not receiving adequate support from the government to put interventions in place to force municipalities to pay.

The Eskom board and the executive need to be given the power and the support from the government to deal with municipal debt the way they see fit, Mavuso said.

Apart from keeping up with current account payments to qualify for the debt relief, municipalities will also be expected to progressively install smart prepaid meters (all new connections must be smart prepaid meters). They also face a three-year restriction on any municipal borrowing and will be expected to phase in cost-reflective tariffs over a period of three to five years.

erasmusd@businesslive.co.za