Govan Mbeki Municipality considers Eskom agreement amid debt crisis
Under this arrangement, electricity revenue would be directed into a controlled account, ensuring that Eskom is paid first.
The Govan Mbeki Municipality council has resolved to consider entering into a delivery agency agreement with Eskom, pending a full review of its terms and conditions. This was revealed by Executive Mayor Nhlakanipho Zuma during a council meeting held on March 25, following the municipality’s continued struggles to meet the conditions of a debt relief programme introduced by the National Treasury in 2023.
The programme was designed to assist municipalities owing to Eskom by promoting financial sustainability, infrastructure development, improved revenue collection, good governance, and enhanced service delivery.
The municipality’s application for debt relief was approved in October 2023. However, it has since failed to meet key conditions, particularly the requirement to pay its current Eskom account in full and on time.
As a result, Eskom pushed for the termination of the municipality’s participation in the programme. Although Treasury initially allowed the municipality to continue under strict conditions, ongoing non-compliance has placed its participation at risk.
Zuma noted that the municipality attempted corrective measures, including the rollout of smart meters, but these efforts were undermined by an unfunded budget and persistent cash flow constraints.
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In February, the National Treasury confirmed that the municipality is in persistent breach of the programme conditions and now qualifies for termination. The reasons cited include continuous underpayment of Eskom accounts and the accumulation of new debt even after relief was granted.
The situation escalated further when Eskom issued a notice of its intention to interrupt or disconnect electricity supply on May 8. If implemented, this action could have severe consequences for residents, businesses, and the local economy.
To address the crisis, the council has adopted a proposal to enter into a Delivery Agency Agreement with Eskom. Under this arrangement, electricity revenue would be directed into a controlled account, ensuring that Eskom is paid first.
The aim is to stabilise the electricity supply to the Municipality, improve revenue collection, and prevent a complete system collapse. However, the proposed agreement carries significant risks for the Municipality.
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These include the loss of municipal control over electricity revenue, reduced financial flexibility, and potential challenges in meeting salary obligations. In addition, the municipality is legally required to undertake a Section 78 process under the Municipal Systems Act.
This involves reviewing how electricity services are delivered, with a deadline set for early September. Failure to comply may result in automatic removal from the debt relief programme.
Should the municipality be terminated from the programme, it will face immediate repayment of its Eskom debt, loss of grant support, such as funding for smart meters, and severe financial pressure.
Eskom may also pursue legal action, while further intervention could be instituted under Section 216(2) of the Constitution. The situation remains financially unsustainable, placing the municipality in a difficult position as it weighs the trade-offs between maintaining financial control and ensuring continued electricity supply.
