Eskom debt needs switched-on action
The South African Local Government Association (Salga) plans to escalate its lobbying on behalf of municipalities indebted to Eskom to presidential level should ministerial attention prove fruitless.
The issue is being attended to by Public Enterprises Minister Lynne Brown Cooperative Governance Minister Des van Rooyen
While the municipalities threatened by cut-offs face a crisis and Eskom is out of pocket to the tune of R10bn there are systemic reasons for the situation and work should begin to tackle them.
The nonpayment of Eskom bills reflects deep-seated organisational and financial problems that need to be taken care of before any sustainable solutions to service delivery — including electricity — can be dealt with.
Salga chairman and former executive mayor of Johannesburg Parks Tau labelled power cuts as "inappropriate" no doubt concerned that the lights may be switched off across SA again after defaulting municipalities were given breathing space earlier this year.
While power cuts are politically unpopular and economically detrimental to vulnerable municipalities Eskom needs this leverage to incentivise payment plans
It is unfair that law-abiding residents face the burden of their municipalities’ mounting debt and the issues of social equity and economic disruption are no doubt being considered by the heavyweight politicians dealing with the crisis.
But without power cuts what leverage is left to tackle nonpayment? And by simply focusing on whether or not power cuts should happen what institutional issues are being overlooked in defaulting municipalities by providing political protection for at times errant management practices?
There is no doubt that municipalities no longer make the same profit in electricity distribution they once did given Eskom’s staggering tariff increases in recent years.
It would be interesting to consider whether local government would have resisted the moves to establish regional electricity distributors about 20 years ago had they known how expensive bulk electricity would become.
With decreased financial slack in distribution margins it has become apparent that there is poor compatibility between municipal and Eskom creditor policies. Eskom charges prime plus 5% interest to municipalities that pay later than 10 days after an invoice is issued but municipalities only charge interest after 30 days hence the mounting municipal debts.
This issue was identified a while ago and should be resolved as a matter of urgency to enable municipalities to deal with current and not historical debt. This would be a suitable issue for ministerial and Salga pressure on Eskom as the utility has indicated a willingness to write off debt where payment plans have been put in place.
A more worrying issue is that of affordability. With disposable income under pressure in the majority of households the above-inflation increases in electricity tariffs over the past few years couldn’t have come at a worse time.
Electricity provision and the costs of generating it was the single most commonly cited grievance in Municipal IQ’s Municipal Hotspots Monitor
Salga although a critic of Eskom’s price hikes should have been more vocal and interrogated Eskom’s rationale for the spiralling price hikes fed through to municipal consumers several years ago especially given the poor management at Eskom that is coming to light.
These systemic issues aside the question needs to be asked why certain municipalities face cut-offs and others don’t.
The case of eMalahleni is instructive — it has a R1bn Eskom bill.
The municipality faced two protests last month — after illegal connections were cut and when defaulters were disconnected in a neighbouring area. Yet the municipality attempted to purchase its mayor a R1.5m car last year.
One has to wonder the extent to which the Eskom debt reflected a political and organisational dysfunctionality in the eMalahleni council.
Dealing with electricity debt requires accurate indigent rolls and transparent allocations of the equitable share well-maintained infrastructure accurate billing credit control and revenue management. These are complex and interrelated responsibilities and when they fail they give rise to spectacular numbers.
These failures raise a debate about powers and functions.
Should Eskom not take over the distribution of electricity in municipalities that have proven themselves to be financially or organisationally incompetent?
Eskom has indicated that it does not want to interfere with distribution licences but would favour agreements that looked at mechanisms such as prepaid meters to improve debt collection.
By distancing local government from electricity distribution income will be lost to local government but if this income was being poorly expended and accounted for and offset by rising debt would there be any negative effect on service delivery? Salga is asking the wrong questions.