December 14, 2018

Eskom: victim or perpetrator?

The Standing Committee on Public Accounts (SCOPA) has now held three meetings on the mounting debt facing Eskom.

Despite the new Eskom board appointed three months ago, and a cleaning out of questionable leadership, it is clearly going to take a lot more than a change in management to turn this ailing institution around so that it can get on with its main business, which is supplying the country with commercial and domestic energy.

It is obvious to all that the Eskom crisis poses a risk to the country as a whole, and urgent interventions are needed to protect the economy from potential non-delivery by the national energy supplier.

SCOPA’s latest step was to call in the Department of Cooperative Governance (COGTA) under whom municipalities fall, the South African Local Government Association (SALGA), which is the municipalities’ umbrella body, and the National Treasury which disburses the money. The meeting was a long, drawn-out blame game, and the only certainty that emerged was that all parties had played a part in Eskom’s demise, starting of course with Eskom itself.

The argument went if the municipalities would pay for the services, Eskom would be able to supply them.

But this was a meeting to look at the role municipalities continue to play in maintaining Eskom’s indebtedness, and what, if anything, can be done about it. Audit reports point to gross financial mismanagement and misconduct in the municipalities where the municipal staff bill exceeds and takes precedence over paying for services for citizens.

The Committee Chairperson announced that it was clear that the reasons for non-payment went beyond finances and that leadership played an important role. The culture of non-payment for services went well beyond protest or simply bloody-mindedness. He made the point that there are structural reasons for municipalities’ failure to pay their bills.

Eskom used the opportunity to plead with the municipalities to pay their accounts and settle their debts, saying that until they do so Eskom itself cannot tackle its own massive shortfall. The argument went: if they (the municipalities) would pay for the services, Eskom would be able to supply them.

That cannot be argued, but of course it is not as simple as that. Without venturing into the role Eskom itself has played in its own downfall, it has to be conceded that Eskom has a point. In just one year, municipal debt to the power utility escalated by 42%, that is from R9.5 billion in 2017 to R13.5 billion in 2018.

Ayanda Noah, Group Executive, Customer Services of Eskom, bemoaned the R4 billion increase in just one year, and pointed out, rather obviously, that the municipal debt position had not improved. She confirmed that the situation is not getting any better and that Eskom’s balance sheet has shown no signs of improvement.

The Free State recorded a debt of over R6 billion and Mpumalanga R3.2 billion. Eskom has found 64% of overdue debt was older than 90 days in March 2017. A year later, 93% of overdue debt was older than 90 days.

This is despite the efforts of the Inter-Ministerial Task Team (IMTT), formed in February 2017, which had come up with a series of concessions to try to help ailing municipalities to pay their bills.

One proposal was a cut in the interest rate ‑ from prime plus 5% to prime plus 2.5%. Between April 2017 and March 2018, the interest charged on overdue amounts totalled R1.504 million. That would make a big difference to Eskom, but how did the IMTT expect a cash-strapped municipality that cannot pay its monthly bill to be able to pay the interest on it. In most cases, this is historic debt that has accumulated over years.

It also does seem short-sighted of the IMTT to believe that the answer is to be found in its other proposals, which included increasing the payment period for municipal bulk accounts from 15 to 30 days (excepting metros) and allocating payment to reduce capital first and interest later. Also, it proposed agreeing to reconnection fees being paid over a period, although at interest, instead of expecting payment up-front.

Eskom’s strategy of cutting off electricity supply to enforce payment for services has also not had much effect. Increasing the electricity supply interruption from four and half hours to six hours each day, and 14 hours in cases of particularly intransigent customers, is unlikely to increase anyone’s capacity to pay up. In fact, it has had the opposite effect of driving them to court for an interdict, a number of which have been granted stopping Eskom from interrupting services.

Eskom has responded by taking some of the worst performing municipalities to court for an interim court order directing payments from large customers, mostly organised business, to pay Eskom directly. As these are the only customers likely to be in any position to make payment, it does leave the municipality even less capable of paying off any debt. This might be helping Eskom in the short term, but the longer term consequences, for Eskom and the municipalities, are clearly self-defeating.

SALGA, as the body that collectively represents municipal governments, was quite to step in to defend them. Nhlanhla Ngidi, SALGA Head: Electricity and Energy, assured Eskom that its financial viability is important to SALGA, but equally important was municipalities’ capacity to provide sustainable and affordable services.

He stressed that municipalities operate in very challenging environments. Without making any reference to leadership weakness and poor governance at municipal level, he reminded the Committee that as far back as 2015 Treasury has threatened that it could withhold budget allocations to municipalities that defaulted on Eskom and Water Board payments. While national government is, justifiably, concerned about escalating debt and the inability of municipalities to honour payment, in breach of the Municipal Financial Management Act (MFMA), Ngidi pointed to the administratively dysfunctional and financially instable municipalities which are simply not able to pay.

He attributed this to systemic and structural challenges arising from the state of the economy; people are not paying because they are not working, and that is because there is no economic activity in those areas.

SALGA said the main challenge lies in the decision by the National Electricity Regulator of South Africa (NERSA) to grant licences directly to Eskom for supplying some municipalities. The situation is made worse because municipalities are unable to levy surcharges in some Eskom supply areas, which results in a further loss of municipal revenue. Municipalities are also unable to exercise credit control, which has the effect of increasing rates and taxes.

SALGA argued that licences issued by NERSA to Eskom to reticulate electricity, thereby bypassing the executive authority of municipalities, effectively undermines the constitutional authority of municipalities.

This dispute has been going on for years and SALGA has informed the IMTT that it intends going to court to seek a declaratory order to define the roles of SALGA and Eskom in supplying electricity.

Moira Levy

Additional information sourced from the Parliamentary Monitoring Group.

Additional Info

  • Author: Moira Levy
Last modified on Thursday, 31 May 2018 14:00

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