Municipalities urged to collect R347bn to settle Eskom debt

South African municipalities owe Eskom over R78 billion, but the debt owed by residents to municipalities is even higher at R347 billion. Nhlanhla Ngidi of SALGA argues that municipalities must aggressively collect this debt to pay Eskom, rather than risk losing distribution licenses as proposed by Nersa. He believes that contractual agreements with Eskom to improve service delivery are more feasible solutions, emphasizing the need for financial reforms and public education on paying utility bills..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Daniel Puchert.Municipalities in debt to Eskom must aggressively collect the R347 billion their residents owe for electricity so they can pay their outstanding bills to the power utility..This is according to Nhlanhla Ngidi, the head of electricity and energy at the South African Local Government Association (Salga)..Ngidi spoke to Cape Talk following the National Energy Regulator of South Africa's (Nersa) proposal to revoke the distribution licences of municipalities that fail to settle their disputes with Eskom..South African municipalities have accumulated debt with Eskom amounting to more than R78 billion..He said Nersa's statement was somewhat sensationalised because revoking licences would require multiple steps to even start the process..He believes Eskom is more likely to sign a contract with the municipalities to become a service provider and improve their inefficiencies rather than revoke their licences.."Nersa understands the number of problems and non-compliance within the sector itself that need more action than simply revoking licences," Ngidi said.."If we were to start assessing everyone's non-compliance, I can tell you now that the entire sector will be shut down. This is because Eskom has its own non-compliance that it needs to deal with, and so do the municipalities.".Read more: South Africa enacts law to end Eskom's monopoly and boost electricity market competition.Ngidi pointed out that municipal customers' debt owed to municipalities countrywide is four to five times more than what they owe to Eskom, reported to be R347 billion at the end of March..To solve this problem, he believes the necessary reforms must be implemented to rehabilitate the struggling municipalities, as most have little incoming revenue and no economies of scale.."We need to go in and very aggressively collect debt and revenue and make sure that there are the necessary credit control measures in place," Ngidi argues.."Furthermore, we must educate people about the need to pay municipalities for utilities so that it can become sustainable and customers can be provided with the services they expect.".South Africa's electricity and energy minister, Kgosientsho Ramokgopa, recently said that the issue of municipal debt to Eskom must be addressed urgently, adding that it will reach R3.1 trillion by 2050 if left unattended.."If the current trend line continues, the collections and payments we are seeing now, if you extrapolate it to 2050, it's about R3.1 trillion. This is huge," he said in an interview in July..The state utility recently locked horns with the City of Johannesburg over an outstanding payment of R1.1 billion, launching legal action against City Power over the debt in May 2024.."The power utility started to default on its payments from October 2023, and no payment was received for the March 2024 invoice," said Eskom.."The debt owed by City Power has reached unprecedented levels, exacerbating Eskom's already strained financial situation.".It said it had no choice but to apply to the Johannesburg High Court for a declaratory order forcing City Power to pay the debt..City Power snapped back at Eskom following its application, saying it had declared a dispute against the state-owned utility for alleged overbilling on bulk purchases dating back to 2021.."Eskom has admitted in some cases that there have been potential billing inaccuracies and has so far refunded City Power at least R483m over the recent years," it said..It claims that Eskom owes it R3.32 billion..Eskom preemptively rebutted City Power's allegations in its initial statement, saying that even if it was overcharged, that didn't negate City Power's responsibility to pay bulk power bills.."Eskom denies the claims made by City Power and will prove its position through the arbitration process," Eskom said.."In terms of the electricity supply agreements sanctioned by the Electricity Regulation Act of 2006, if a municipality raises a dispute with Eskom, it must still pay.".The High Court favoured Eskom and instructed City Power to pay the R1.1 billion it owes..However, in its latest statement, the Johannesburg power utility said it is appealing the High Court ruling..Read also:.What a free electricity market could look like in SA: Andrew KennySouth Africa requires a $21bn electricity grid expansion to curb power crisisEskom forecasts no load-shedding after operational turnaround.This article was first published by MyBroadband and is republished with permission

Municipalities urged to collect R347bn to settle Eskom debt

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