Plan for Eskom’s municipal debt has ‘stalled’
· Citizen
As the crisis of arrear municipal debt owed to Eskom deepens, a report by the National Energy Crisis Committee (Necom) containing proposed solutions, has allegedly been sitting on the desk of the Minister of Electricity and Energy Dr Kgosientsho Ramokgopa for a year.
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This has seemingly paved the way for a widespread Eskom takeover of municipal electricity distribution functions, with the exclusion of private-sector concessions.
Eskom on 19 May gave the City of Joburg notice of its intention to “reduce, interrupt and/or terminate the supply of electricity to certain bulk supply points against the City of Johannesburg and City Power” due to arrear debt of R5.2 billion and the city’s failure to comply with an earlier payment agreement.
This follows a similar notice to the Ekurhuleni metro in March over R3.4 billion arrear debt, which prompted the conclusion of a payment agreement.
With the City of Tshwane also in arrears and operating under a payment agreement with Eskom, it means all three Gauteng metros have, over an extended period, been failing to pay Eskom on time and in full, putting the sustainability of the utility at risk.
A further 13 municipalities have been identified by National Treasury and Eskom as being so heavily indebted to Eskom, and having such poor payment records, that they risk having their bulk supply suspended.
Nine of these have indicated that they are prepared to enter into a distribution agency agreement (DAA) with Eskom.
Total arrear municipal debt now totals R11 billion.
Under a DAA, the electricity distribution function is outsourced to Eskom, and consumers pay for electricity directly into Eskom’s bank account.
Questions persist, however, about the sustainability of these agreements.
DA spokesperson on electricity and energy Kevin Mileham has called for Eskom to appear before the parliamentary portfolio committee to answer questions in this regard, but no date has yet been set for such a meeting.
Against this backdrop, two sources with inside knowledge told Moneyweb that reform of the electricity distribution industry (EDI) has stalled since the report reached the minister about a year ago.
Operation Vulindlela noted in its third-quarter report that this reform was one of three activities (out of 30) “facing significant challenges, intervention required”.
Excerpt from Operation Vulindlela’s detailed quarterly progress dashboard:
According to Moneyweb’s sources, “a huge amount of work” done by the Presidency and Necom has been “sitting on [the] minister’s desk for a year”.
The Necom report was drafted following several workshops with the South African Local Government Association (Salga) and municipalities as part of a “thorough and systematic study of the EDI”.
It contains a proposed reform path that includes different sets of options for municipalities with minor problems, those with medium issues, and a range of options for failing municipalities, Moneyweb was told.
The DAA that Eskom offers as an alternative to supply interruptions is one of the options proposed for failing municipalities, but according to sources, the report also makes provision for private-sector concessions.
Ramokgopa is, however, accused of pushing only the DAA option and regarding the rest as unnecessary.
This is despite clear success of private-sector partnerships in municipalities such as Mafube in the Free State and Nama Khoi in the Northern Cape.
Minister Ramokgopa responded by saying: “The DAA is a Cabinet-approved intergovernmental approach to stabilising the municipal electricity sector, whilst the broader reform addresses a more medium- to long-term reorganisation of how we handle distribution.
“It’s not one or the other, but the sequencing. We’ve focused on the DAAs to stabilise distribution and stem the revenue losses. This is the building block for broad reform in distribution.”
Government, through Operation Vulindlela, has introduced private-sector involvement as a solution to several other economic problem areas, including electricity generation and logistics.
Eskom also punted its DAA as a solution in its press release regarding the recent situation in Joburg.
Julius Kleynhans, executive manager for support services at Organisation Undoing Tax Abuse (Outa) says it would bring short-term relief if Eskom were to take over the electricity distribution function in Joburg, but that such an arrangement would not be sustainable.
The organisation hopes to meet Eskom next week to discuss what a possible DAA would entail.
This comes against the backdrop of objections from National Treasury and Salga, which argue that Eskom’s current DAA agreement is skewed too heavily in the utility’s favour.
Julia Fish, manager at JoburgCAN, says a DAA was discussed a year ago when Eskom also put Joburg on terms, but Ramokgopa intervened at the time and the parties instead entered into a three-year payment agreement, which the city has since failed to honour.
She says the City of Johannesburg has been starving its electricity utility, City Power, of cash, and that a serious financial intervention is needed by provincial or national government “at least until the local government elections” in November.
Experts interviewed by Moneyweb agree that whoever intervenes in struggling municipalities – be it Eskom or private-sector players – will have to invest upfront initially.
Deon Conradie, former senior manager for pricing at Eskom, says the regulatory framework does not make provision for Eskom to use money collected from consumers through tariffs for anything other than supplying electricity to its ordinary customers.
The taxpayer money allocated by government to relieve Eskom’s debt burden is also tied to strict conditions and may not be spent on struggling municipalities.
The utility would need funding from elsewhere to fund its interventions at least in the beginning, and then the question remains whether it can stretch its human resources to manage electricity distribution to millions of additional customers.
According to Conradie, the energy regulator Nersa must ensure that Eskom uses its tariff revenue correctly.
Nersa earlier told Moneyweb that it had not sought answers about the capital Eskom intends to invest in municipalities because the DAAs had not yet been submitted to it.
This article was republished from Moneyweb. Read the original here.