Eskom switch-off: These are the municipalities at risk

When Eskom announced on 5 March that it will proceed with steps towards credit control measures that may leave residents of 14 municipalities in the dark, it did not disclose the names of the affected councils.

Moneyweb reported on Friday that the Ekurhuleni metro on the Gauteng East Rand, which supplies electricity to OR Tambo International Airport, is among the 14.

We can now disclose the full list of names, as provided by Eskom.

The announcement came as municipal arrear debt to Eskom exceeded R110 billion, posing an existential threat to the utility.

Eskom has exhausted the inter-governmental process that courts have held should be exhausted prior to disconnection.

The municipalities further failed to comply with the conditions of a debt relief programme initiated by National Treasury in 2023, which could have seen their arrear debt to Eskom written off over three years.

One of the conditions was that they must pay their current Eskom bills on time and in full.

Eskom is now inviting stakeholders in these municipalities to submit comment on the matter.

Amanda Qithi, spokesperson for Eskom distribution in Gauteng, said in relation to Ekurhuleni that such comment will inform which emergency services might be excluded from any cut-off action.

From the notices Eskom has published, which Moneyweb has seen, Eskom will also be using the situation as leverage to get municipalities to enter into Distribution Agency Agreements (DAAs).

That means Eskom will take over the electricity distribution function, while the municipality retains the distribution licence.

Eskom offering to ‘assist’

In the notice to the Nala Local Municipality, which is R1.2 billion in arrears, Eskom euphemistically explains that it will “assist municipalities” with services such as technical skills development, maintenance, operating the municipal network, managing energy losses, pricing and tariff structuring, billing, revenue management and collections.

In the three DAAs that Eskom has so far concluded it was stipulated that municipal customers would make payment for their electricity usage directly into the Eskom bank account, and not that of the municipality.

A merit order was then provided for Eskom’s application of the funds, with the municipality getting small change if anything is left.

This is something the South African Local Government Association (Salga), which represents municipalities, was dead set against, its energy advisor Dr Silas Mulaudzi told Moneyweb at a recent conference of the South African National Energy Development Institute (Sanedi).

According to Salga portfolio head for energy and electricity distribution Nhlanhla Ngidi this has subsequently changed.

“Salga has advised against this in the execution of the DAA that Eskom is tabling to the municipalities that owes them. The agreement is that a municipality will open a separate account where electricity collections will be paid, and then disbursements will be agreed upon every month end,” he told Moneyweb.

“If Eskom is allowed to have customers paying directly to them, it will be cherry picking and not dealing with the entire issue facing municipalities which is high rate of non-payment by consumers.

“Therefore, Eskom must deal with all challenges facing municipalities holistically in the DAA and not only pick customers that are paying,” Ngidi said.

This presumably follows the establishment of a task team – with representatives from Eskom, National Treasury, Salga, the Department of Electricity and Energy, and the Department of Cooperative Governance and Traditional Affairs (Cogta) – that is refining a standardised DAA.

National Treasury further stated as far back as December that municipalities must comply with Section 78 of the Municipal Systems Act “before the DAA can be concluded”.

That requires, among other things, extensive public participation and a feasibility study – something that seemingly was not complied with regarding the DAA with Merafong (Carletonville) that was concluded in October last year and announced by Eskom in December.

AfriForum has written to the municipality to ask for documentation relating to the DAA and the processes followed before its conclusion.

Alternative options

The second option Eskom gives Nala municipality, and presumably the other 13 as well, is that customers pay Eskom directly “for the electricity they consume on the Eskom tariff”.

This seems to mean that customers will pay the considerably lower Eskom tariffs to Eskom, and the municipality will be left to collect its mark-up by itself.

While this will be a very attractive option for consumers and provide an incentive for them to pay Eskom directly, it will be devastating for municipalities.

It may also be seen as an effort by Eskom to bypass the onerous process that National Treasury insists on before municipalities can conclude a DAA.

Moneyweb was unable to get more clarity on this from Eskom.

Salga’s Ngidi also expressed concern about this option: ‘The issue of municipal customers paying directly to Eskom using Eskom tariffs will be detrimental to municipalities because in most cases a municipal tariff will be slightly higher because it is offsetting the Eskom tariff with the view to recover[ing] a markup on top of that.”

The third option Eskom is putting to stakeholders is for the municipality to be put on prepaid and only provided with the electricity it pays for.

That will presumably leave many consumers in the dark.

These issues will come to a head shortly after the closing date for comments in April. Eskom indicated that it will take a final decision on the way forward in little more than a week after the closing date. – moneyweb.co.za