Municipal debt to Eskom worsens significantly, execs tell Parliament

Cape Town - The outstanding debt municipalities owe Eskom has grown to R13.88bn, reflecting a worsening situation, Parliament has heard.

Eskom executives and board members briefed the Standing Comittee on Public Accounts on the municipal debt situation. Scopa chair Themba Godi invited National Treasury, the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the South African Local Government Council to make presentations. Godi said it was the third meeting on the matter and that the committee was serious about “lending a hand” to find a solution.

Eskom Chair Jabu Mabuza pointed out that investors do not look kindly at the situation as the municipal debt may compromise Eskom’s ability to service its debt. “This reduces the appetite for Eskom bonds,” he said.

Following a previous meeting with Scopa in March, the situation had not improved, Mabuza said. As at the end of April, overdue debt stood at R13.88bn, he told the committee. Mabuza said that Eskom is taking steps to penalise non-paying customers with power interruptions, and that any recovery will be done within the ambit of the law.

Mabuza lamented that the financial stability of Eskom is at risk and all stakeholders must “do the right thing”.

“Debtors must fulfill their obligations so Eskom can fulfill ours.”

Eskom’s group executive of customer services Ayanda Noah highlighted to the committee the worsening situation. During the 2017/18 year, municipal debt had increased 40% or by R4.164bn.

The Free State, Mpumalanga and North West were among the worst offenders, while Gauteng and the Northern Cape were also worrying. The top 10 defaulting municipalities collectively owed R9.73bn. The top 20 defaulting municipalities owe R11.4bn.

Eskom has made concessions to assist municipalities. This includes the rationalisation of tariffs, which is to be implemented in July 2019 once the National Energy Regulator of South Africa gives approval, Noah explained.

Eskom has also decreased the interest charged from prime plus 5% to prime plus 2.5% and changed the payment period on accounts from 15 days to 30 days.

The payment policy has also changed to go towards capital first and then interest and Eskom is allowing municipalities to pay connections charges over a period at relevant interest rates instead of upfront cash.

Payment arrangements

Noah added that sometimes once payment arrangements are reached with municipalities, they are still not honoured by municipalities. Payment arrangements with 52 municipalities have been signed, of these 12 have not been honoured at all.

Noah said that organised communities, individuals and business are the ones who take court action against Eskom over the interruptions and not the municipalities. This is because the interruptions affect business and the livelihoods of people.

From these experiences, Eskom found that parties would prefer to pay Eskom directly and ask that Eskom take over the supply.

Noah concluded that Eskom is working on inter-governmental solutions, engaging with business and making operational changes.

No load shedding

Mabuza also took the opportunity to assure Scopa that there would be no load shedding this winter, barring any natural disasters.

“We cannot guarantee that there will never be load shedding but there is nothing in system suggesting we will have load shedding. We will meet winter demands.”

Mabuza said that Eskom found itself in a situation with tight coal supply due to decisions taken three years ago. “Whether right or wrong, a decision was taken by Eskom to make Tegeta the preferred supplier.”

Tegeta now is challenged to meet supply requirements, and this has affected power stations Komati, Hendrina and Arnot, said Mabuza.

He explained that National Treasury has given the utility permission to deviate from the procurement process to get an emergency tender to ensure coal supply to its power stations.

“More than half of 15 coal-fired station have coal stock within the grid code of 20 days,” he said. Eskom is taking measures to move coal from other power stations to supply them.

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