Municipalities that fail to meet the requirements of the debt relief scheme for arrears owed to power provider Eskom will be removed from the programme, the Nation Treasury has warned.
In 2023, the government invited municipalities to apply for debt relief for arrears owed to Eskom.
The plan was to write off the debt over a three-year period provided that the municipalities complied with set conditions that included enforcing credit control and collecting revenue to pay bulk expenses such as electricity and water, and up-to-date payment of Eskom monthly current account.
The debt owed by municipalities to Eskom has now spiralled to R90 billion as of December 2024, and R74 billion was owed collectively by 71 municipalities on the debt relief programme.
Speaking to journalists at a pre-budget briefing this week, director-general Duncan Pieterse said they were concerned about the defaulting municipalities.
“Should they not meet the conditions, they will be exited from the programme. Once exited, Eskom’s processes will kick in like the attachment of municipal banks and legal action,” he said, adding that they will not receive protection from the debt relief programme.
Pieterse made the statements prior to the postponement of the budget in Parliament by Finance Minister Enoch Godongwana after parties in the Government of National Unity (GNU) could not reach consensus about the proposals contained in the budget, including tax increases.
A Budget Review document said many of the 71 municipalities in the municipal debt-relief programme are failing to meet the required conditions for national government to write off their arrears debt to Eskom in equal tranches over three years.
It cited persistent non-payment of monthly electricity accounts and an inability to collect the mandated 85% of revenue as the reasons for the failure.
At least 47 municipalities, including Mfuleni and Maluti-a-Phofung, have consistently defaulted and already accumulated substantial arrears after receiving debt relief.
The affected municipalities continued to struggle with financial management, risking termination from the programme despite monthly support from provincial Treasuries.
“This is simply unsustainable,” said Godongwana in his speech he could not deliver due to the postponement of the budget.
“To municipalities still struggling, our message is clear: implement cost-reflective tariffs, target free basic services to those truly in need of them, embrace smart technology such as smart prepaid meters to improve revenue collection,” he said.
The turn of events has prompted the National Treasury to issue final warnings to several municipalities, including Mangaung Metro, Richtersveld, and Inxuba Yethemba.
Once kicked out of the Eskom debt-relief programme, municipalities will be required to repay their debt and accumulated arrears in full while facing credit control measures from Eskom, such as legal proceedings and the introduction of prepaid bulk electricity systems.
Despite the poorly-performing councils, there were “success stories”.
Godongwana said compliance with debt conditions by municipalities has risen to 76%.
“Eleven more municipalities have now had one-third of their debt written off after meeting the conditions of the programme. Three additional municipalities are due for relief,” he said.
The National Treasury said: “These successes highlight the programme’s potential to improve municipal financial stability.”
Pieterse said they would use the period between now and March to get an insight into the defaulting municipalities.
“The National Treasury and provincial treasuries will continue to enforce programme conditions and support municipalities.”