Eskom and its minister Kgosientsho Ramokgopa are moving full speed ahead with what they call a Distribution Agency Agreement (DAA) – their proposed solution for municipalities that collectively owe the utility more than R94 billion.
Ramokgopa said the project will go before cabinet soon, while Eskom CEO Dan Marokane told Moneyweb that some announcements are imminent.
The DAA entails the appointment of Eskom as an agent of the relevant municipality to run its electricity function, including maintenance, repairs and the collection of revenue.
In other words, consumers will no longer pay the municipality for electricity. The money will instead be paid directly to Eskom.
The municipality however retains its distribution licence, and in theory, the agency agreement comes to an end when the municipality has been capacitated through Eskom’s assistance and its arrear debt paid off.
Drilling down to the details
Moneyweb has over the last few months tried to get more information about the detail of these agreements, and it was not easy. Eskom has been slow to respond to our questions and, when it has, the answers have often been vague and lacking in substance or detail.
We have established that such agreements have been entered into in only two municipalities so far, namely Maluti-a-Phofung based in Harrismith, and Emfuleni based in Vanderbijlpark. In both cases, this was as a result of a court order.
Marokane said at a recent media briefing that negotiations for a further 14 such agreements are at an advanced stage.
Moneyweb was able to get an unsigned copy of the Maluti DAA that served before the municipal council, as well as a signed copy of the Emfuleni DAA.
The agreements are fairly similar, although they provide for a 10% “handling fee” in the case of Maluti, and a 4% “administration fee” in the case of Emfuleni, payable to Eskom.
Eskom refers to these fees as financial instruments to recover project costs. It is not clear whether this will be incorporated into electricity tariffs or not.
The agreements further provide for a merit order that Eskom will follow to allocate the revenue collected from customers – first to the municipality’s current bill for bulk purchases, then to “cost to serve”. The latter is not defined, but according to Eskom includes administration or handling fees, capital expenditure and then arrear debt.
In Maluti’s case, the full residue after settling the first three items goes to arrear debt, while in the case of Emfuleni, the agreement determines that 10% of the residue will go towards arrear debt and the rest will be paid to the municipality.
Councillors in both municipalities told Moneyweb they have received no feedback from Eskom regarding progress and financial outcomes of the Eskom ‘take-over’.
“Without regular reports, the municipality is unable to monitor Eskom’s performance properly,” said Gerda Senekal, an FF+ councillor in Emfuleni who serves on the finance committee. Eleanor Quinta, a DA councillor in Maluti, has been asking for workshops to create a better understanding of how the agreement works, but without success. “It is as if everything happens in the dark,” she says.
Maluti’s mayor Malekula Melato was unwilling to grant an interview on the matter, saying she first needed to obtain an update from Eskom.
On 1 October 2024, when the Emfuleni agreement was concluded, the municipality owed Eskom R7.8 billion. By the end of July, it had increased to R8.7 billion, according to Eskom.
Eskom has not provided proper answers regarding improvements in the collection success rate in Emfuleni or the amounts the municipality has paid so far in terms of the 4% administration fee.
The two parties did however issue a brief joint statement on 1 April, saying that for the first time in months, the Emfuleni Local Municipality had successfully paid its electricity current account in full.
In Maluti, the arrear debt stood at R7.3 billion in February 2023. The agreement was implemented in September that year. At the end of June this year – 21 months later – the arrear debt had increased to more than R9 billion.
The utility told Moneyweb the arrear debt is expected to start declining in the fourth year of the agreement.
Eskom says it has allocated R153 million over five years to upgrade the Maluti distribution network and has so far spent R17 million. This money will be recovered from efficiencies and improved payment levels. In reality, R1.2 billion is however needed for grid upgrades, the utility says, but funding is a challenge.
At first, Eskom would not answer questions as to whether the collection rate had improved or not, stating that “we cannot disclose such customer information”.
CEO Marokane however told Moneyweb at the announcement of Eskom’s 2024/25 financial results recently that the collection rate had improved from 25% to between 55 and 65%.
FF+’s Senekal says while the DAA may look like a good solution, councillors and local governments lose direct control over their electricity functions and must rely on feedback from Eskom.
“The municipality becomes dependent on Eskom’s decisions and priorities.”
Energy analyst Chris Yelland of EE Business Intelligence commented that: “It appears quite unlikely that the municipal arrear debt under these arrangements will ever be paid off. As such, it seems that the Distribution Agency Agreements may turn out to be a take-over by stealth of the electricity distribution service delivery obligations of the two municipalities by Eskom, and this may signal the road ahead for several other defaulting municipalities in due course.” – moneyweb.co,za
