Two more metros battling to pay Eskom

Eskom has confirmed that Tshwane is not the only one of the country’s eight metros that is battling to pay its Eskom bill for bulk electricity purchases.

Mangaung, currently under administration, was unable to cough up the payment due at the end of August and is currently in negotiations with Eskom, while Ekurhuleni is settling its bills only partially on time and paying the balance two weeks late, according to Eskom.

This is bad news for Eskom, which saw outstanding municipal debt soar from R44.8 billion in March to R49.1 billion in July.

So far Eskom’s battle to get its money has been, although widespread, limited to smaller municipalities where the amounts at stake are not as large as in the big metros.

Indications are that the number of metro defaulters may however grow as they increasingly battle to collect consumer debt and run out of cash.

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Eskom predicts stage 2 load shedding over winter, stage 5 in worst-case scenario

Almost R400 billion debt

Eskom’s finances are buckling under a debt burden of almost R400 billion. It has its hopes pinned on relief from government to reduce its debt by at least half, which is all it can afford to service.

President Cyril Ramaphosa indicated during his announcement of an emergency plan to end load shedding that Finance Minister Enoch Godongwana is working on a proposal.

He is expected to make an announcement in this regard in October, when he presents his adjustment budget (the medium-term budget policy statement).

By Wednesday, Tshwane had missed the deadline to pay Eskom the R1.6 billion owed for bulk purchases in July, with a full R1.2 billion still outstanding.

ALSO READ: Eskom rejects City of Tshwane’s payment arrangement on outstanding bill – disconnection looms

This despite a collection blitz earlier this year when city officials cut the power supply to a large number of business premises and government buildings where their municipal accounts were in arrears.

Last week Eskom rejected a payment plan proposed by the City of Tshwane, saying it will proceed with legislated steps in preparation for disconnecting the capital city.

Tshwane MMC for finance Peter Sutton hit back, saying disconnection would be unlawful and the city is prepared to get a court order to prevent that from happening.

In the meantime business grouping Sakeliga and civil rights group AfriForum have both written to Eskom, warning against such drastic action.

Both indicated that they are prepared to approach the courts to prevent Eskom from disconnecting electricity supply to the city.

Leon Claassen, analyst at Ratings Afrika, says in the year ended 30 June the city made a net profit of almost 10% from electricity sales. He asks why this was not used to pay Eskom.

‘No hope of bailing out Tshwane’

There is no hope of National Treasury bailing out Tshwane because the state coffers are also empty, says Claassen.

Independent municipal consultant Advocate Werner Zybrands is also surprised by the large amount Tshwane seems unable to pay.

Zybrands says the money must have been used to pay other expenses and points to the notoriously high salary bill in most municipalities.

According to data obtained by Rapport newspaper, Cape Town is the only metro where the rate at which residents pay their municipal accounts and the amount of cash available to the city show financial sustainability.

Buffalo City collected less than 60% of its outstanding debt in July, far shy of the 95% benchmark set by National Treasury.

In a recent statement Mayor Xola Pakati pleaded with residents to pay their municipal accounts promptly. He said some capital projects have been halted due to the pressure on the metro’s cash flow.

Buffalo City and Nelson Mandela Bay still have some cash reserves, but this will run out sooner rather than later due to poor debt collection, says Claassen.

eThekwini, on the other hand, reported a collection rate on par with the benchmark, but its cash reserves are too low to cover even its running expenses for a month.

ALSO READ: City of Tshwane threatens legal action against Eskom over R1.17 billion bill

No recent data was publicly available from the City of Joburg, because it has not yet served its financials before council.

Dawie Roodt, chief economist at the Efficient Group, says when payment levels deteriorate beyond a certain point, non-payment becomes embedded in the culture, as is the case with TV licences and e-tolls.

“This is now happening in municipalities,” he says, adding that this can only be rectified with sustained draconian collection efforts.

He says he sees big trouble coming for Eskom, as well as water boards that supply bulk water to municipalities.

This article first appeared on Moneyweb and was republished with permission. Read the original article here.