Are Eskom’s solutions for municipal debt faltering?

The government and Eskom are currently providing very little information about the solutions they sought to impose on municipalities that are deeply indebted to the power utility.

Moneyweb has been sent from pillar to post and, after weeks of enquiries, has still been unable to obtain clarity on progress towards concluding lawful Distribution Agency Agreements (DAAs) that would see Eskom take over electricity distribution in the municipalities concerned.

Moreover, nothing has come of the one agreement Eskom had envisaged for a municipality to switch entirely to a prepaid system.

This would see the municipality receive only the electricity it can pay for, potentially leaving residents without power for periods of time.

Meanwhile, the outstanding amount continues to rise. The latest figure released by Eskom, covering the period to the end of June, stands at R119 billion.

The power utility described municipal debt as “the biggest threat to Eskom’s finances” when it released its results for the year ended 31 March.

**Three options **

In March, Eskom notified 14 municipalities that their electricity supply could be cut off unless they paid what they owed the utility.

The municipalities affected were the Ekurhuleni metro, Dr Beyers Naudé municipality in Graaff-Reinet, Inxuba Yethemba in Cradock, Nala in Bothaville, Nketoana in Reitz, Masilonyana in Theunissen, Ngwathe in Parys, Mpofana in Mooi River, Govan Mbeki in Secunda, Kgetlengrivier in Koster, Mamusa in Schweizer-Reneke, Thembelihle in Hopetown, Kai !Garib in Keimoes, and Renosterberg in Petrusville.

Eskom gave them three other options:

• DAAs, under which the municipality appoints Eskom as an agent to take over the municipal electricity distribution function, including collecting payments from consumers for electricity purchases – the money would be paid into Eskom’s bank account rather than the municipality’s;
• Allow consumers to make their payments directly to Eskom; or
• Switch to a prepaid system.

In May, Eskom said in a statement that there had been “marked progress” since it placed the municipalities on terms in March.

It reached a payment agreement with Ekurhuleni, while Inxuba Yethemba had agreed to switch to a prepaid system.

Nine municipalities, under pressure from National Treasury, adopted council resolutions to implement a DAA with Eskom, the power utility said. At that stage, Dr Beyers Naudé, Kai !Garib and Mamusa had not responded, and Eskom issued final notices to them.

DAA plans hit legal hurdles

Since then, however, Dr Beyers Naudé has obtained a court order preventing Eskom from cutting electricity supplies to towns in the municipality before the legally prescribed processes for outsourcing a municipal service have been followed.

These include, among other things, an investigation to determine whether the municipality has the capacity to provide the service itself and, if not, a tender process and feasibility study.

Legally, the service cannot simply be transferred to Eskom without giving other potential service providers an opportunity to secure the contract.

The process can take months.

National Treasury set a deadline of 1 September for the municipalities to appoint Eskom as an agent, while the Department of Cooperative Governance and Traditional Affairs (Cogta) issued a guideline for an expedited process to comply with the legal requirements.

On the eve of the deadline, Treasury remained silent on an extension requested by the South African Local Government Association (Salga), and the date came and went without any of the municipalities concluding an agency agreement with Eskom.

Moneyweb then asked National Treasury how many of the municipalities had completed the legal process. The question was referred to Cogta.

Pearl Bonqose, spokesperson for the department, acknowledged receipt of questions sent by Moneyweb on 27 August, but has still not responded.

Eskom says it cannot comment on the progress in each municipality.

Prepaid deal fails to materialise

What Eskom has confirmed, however, is that nothing has come of the proposed prepaid electricity arrangement in Inxuba Yethemba.

In a statement issued after Moneyweb’s enquiry, it said: “Eskom wishes to confirm that there is currently no prepaid electricity agreement in place with the Inxuba Yethemba Local Municipality.

“Eskom has, however, issued a notice to the municipality proposing that it consider entering into a prepaid electricity agreement. The municipality has been requested to provide a response by 22 September 2026.

“Numerous engagements have taken place between Eskom and the municipality regarding the settlement of the municipality’s outstanding debt. However, no agreement has yet been reached.”

Meanwhile, AfriForum continues with the court case in which it is challenging the legality of the DAA concluded between the Merafong municipality in Carletonville and Eskom.

All indications are that the municipality did not follow the legally prescribed process for outsourcing a municipal service.

The Ditsobotla municipality in Lichtenburg has also recently appointed Eskom in this manner, apparently also without complying with the law.

This article was republished from Moneyweb. Read the original here.