Why we can't pay Eskom: Top ten defaulting councils share financial horror stories

Cape Town – Spiralling debt, compounded revenue losses, a chain of non-payment and 'ghost vending' – these were just a few of the issues listed when Parliament's Standing Committee on Public Accounts heard from the municipalities not paying their debts to Eskom.

The top ten defaulting councils were in the hot seat before Scopa on Wednesday morning, explaining why they continually failed to settle their debts to the embattled power utility.

They cited structural challenges in their own financial practices as well as historical financial constraints. They also blamed their own communities for refusing to pay power rates, and in some cases, said the parastatal had unrealistic expectations of their ability to pay their debts.

Municipalities themselves are owed some R100bn by households, business and provincial and national government.

According to information from Eskom, the total debt it was owed by municipalities in May stood at over R13bn, with the top ten defaulters on payment owing close to R10bn.

Eskom is considering approaching the courts over a lower tariff increase than the power utility hoped for from the National Energy Regulator of South Africa (Nersa).

Top defaulters

The top defaulters include Matjhabeng Local Municipality in the Free State, Ngwathe Local Municipality in the Free State, Govan Mbeki Local Municipality in Mpumalanga Province, Ditsobotla Local Municipality in the North West, Naledi Local Municipality in the North West, Emalahleni in Mpumalanga and Lekwa Local Municipality in Mpumalanga.

Matjhabeng municipal manager Thabiso Tsoaeli told Scopa that there was a high percentage of unemployment and poverty in that municipality, which has historically had a negative impact on collections.

READ: Here are the top ten municipal culprits not paying Eskom debt

"Before July 2014, the municipality was charging a flat rate for electricity, and not the tariff that Eskom was awarded. But when we introduced that in July, there was resistance. We went to court and were challenged by the Goldfields Chamber of Business," said Tsoaeli.

Tsoaeli said council approved the municipality’s payment plan, which it shared with Eskom. There was a principle agreement with Eskom that if Matjhabeng paid R45m each time it received the equitable share from government, it would be able to pay the debt over a 13-year period.

"In March, we paid R33.5m and we started ring-fencing amounts for repayment in April.

"We also presented a financial recovery plan to Eskom to audit our meters, as we found out that even those who can pay are stealing electricity," Tsoaeli said.

Emalahleni acting municipal manager Sizwe Mayisela said Emalahleni was close to Eskom’s Kusile Coal Power Station. He said the station’s construction was winding down, and a huge number of the people that relied on those jobs during the construction and development phase were returning to Emalahleni with no source of income.

'A culture of non-payment'

"Emalahleni has a lot of people depending on social grants, increasing from 34 000 to 89 000 between 2012 and 2017. The unemployment rate increased from 25% to 27% in the same time.

"Among the youth, the unemployment rate is as high as 32%,” said Mayisela.

Mayisela said Emalahleni was currently paying Eskom. However, he said, while the outstanding balance in 2012 on the debt stood at about R58m, Eskom arrived at a figure of R1.7bn in outstanding debt in a space of five years, all while the municipality was servicing the debt.

"Emalahleni has a large number of Eskom employees, and we are told that they are involved in illegal connections to electricity in the area. There is a culture of non-payment and resistance from our communities, and [...] local officials are threatened when they urge residents to pay," said Mayisela.

Ditsabotla acting municipal manager Thabo Sebothenyane said the collection rate at that municipality stood at 50%, and the council was trying to improve on its revenue collection for electricity.

"Our current debt with Eskom stands at about R305m. In 2016, our council entered into a payment agreement; it was at R146m. Between then and now, we have paid around R50m, but it is evident that our debt has not decreased, but is growing," said Sebothenyane.

Illustrating the financial crises of the council, Sebothenyane said the average collection per month was R18m and operation cost was R20m, while Ditsabotla’s salary bill stood at R14m. On top of this, they had to find a way to pay R10m to Eskom.

READ: Municipal debt to Eskom worsens significantly, execs tell Parliament

Ngwathe municipal manager Bruce Kannemeyer told Scopa that technical constraints and efforts by some residents to crook the system had undermined revenue collection from residents that consume electricity.

"We have performed a high level analysis between the consumption billing from Eskom to Ngwathe and Ngwathe municipal billing to the consumer. The outcome of the analysis indicates that the council has lost R169m over a period of three years due to technical losses," said Kannemeyer.

By-passing and ghost vending continue to compound the municipality’s losses, allowing households to access unlimited amounts of electricity without proportional or even flat rates for the power they consume, he said.

Spiralling debt

Govan Mbeki acting municipal manager Sechaba Mokoena said the government owed Govan Mbeki R18m. He said the conflation of historical debt to Eskom and the debt on the municipality’s current account made it impossible to get a grip on the spiralling debt.

"We paid R542m of the Eskom bill, but we are struggling with old historical debt. If we look into that then we won’t have a problem getting a handle of our debt. Up to 22% of potential revenue is lost through illegal connections and ghost vending," said Mokoena.

Ghost vending is the illegal and selling of prepaid electricity vouchers, and is thought to lose Eskom hundreds of millions per year.

Lekwa mayor Linda Dhlamini told Scopa that one of the biggest challenges in repaying the debt to Eskom was that payment culture remained extremely low among residents.

"We are dealing with a situation where we are given 15 days to pay and we give our consumers 30 days to pay, and this allows the interest to accumulate aggressively. Because we are partners with Eskom, we look to them to assist us in resolving this constructively," said Dhlamini.

Naledi municipal manager Tshepo Bloom told Scopa that Eskom was at the top of its creditor list, alongside other large creditors including the South African Revenue Service, the office of the Auditor General, the Development Bank of South Africa and the South African Local Government Association.

"The Auditor General gave Naledi an unqualified audit, but said that the council was not a going concern. In my limited understanding of the accounting there is little to celebrate there, because if you get an unqualified audit and cannot deliver services, it doesn’t mean anything," said Bloom.

Bloom told the committee that the money Naledi got for electricity was often used to pay salaries and to fund things like fire services, library services and running traffic by-law enforcement at a loss. He proposed that the provincial sphere take on the funding of these functions instead.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
Rand - Pound
Rand - Euro
Rand - Aus dollar
Rand - Yen
Brent Crude
Top 40
All Share
Resource 10
Industrial 25
Financial 15
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot