Rising municipal debt, coupled with Eskom’s poor financial and operational performance, pose a systemic risk to the sustainability of the company, State-owned Eskom CFO Calib Cassim said during public hearings into Eskom’s three-year tariff application, in Bloemfontein, on Wednesday.

Cassim said the ballooning municipal debt, together with the rising Soweto debt, are no longer just an Eskom problem – hence, the involvement of the inter-Ministerial task team that includes, besides others, representatives from the departments of Cooperative Governance and Traditional Affairs, Energy, Public Enterprises and National Treasury, as well as the National Energy Regulator of South Africa (Nersa).

He said the Eskom board had assessed the ability of the group to continue as a going concern, and considered a number of mitigating strategies and actions to address the risks identified.

“What is clear is that Eskom cannot solve financial and operational sustainability challenges that it faces alone. The turnaround of Eskom is a journey over time that is highly dependent on the active involvement of the shareholder, Nersa and other stakeholders including customers,” said Cassim. 

Eskom customer services GM Thys Möller said municipal debt had increased by 80% in the past 18 months, reaching R17-billion by the end of September 2018. Soweto debt, including interest charges, also rose to R17-billion during the same period.

“Municipal debt continues to rise and this has become unsustainable. Municipal debt is no longer just an Eskom problem, it is a national problem. Eskom continues to participate in the inter-Ministerial task team process with a view of finding lasting solutions together with other stakeholders,” he said.

He noted that Eskom had, to date, installed more than 80 000 split prepayment meters in Soweto. He added that the disconnection of defaulting customers would continue.

Cassim pointed out that Eskom had made every effort to control its operating expenditure but it needed, in addition to the savings, more revenue through price increases and balance sheet support from the shareholder.

He added that the application for a 15% a year increase in tariffs over the three years still did not fully cover Eskom’s debt commitments.

“If we want to change and make Eskom’s balance sheet sustainable, in addition to Eskom containing its costs, we need to change its returns by prices going up and get it to what is allowed.

“The shortfall in tariffs cannot be solved through cost reductions alone and while others have pointed Eskom to the debt market, further indebtedness adds to the problem. In the period 2007/8 to 2017/18 Eskom’s debt has gone up ten-fold compared with price increases that have gone up five-fold.”

Both the Department of Energy, through the Electricity Pricing Policy, and government indicate that Eskom should have reached a higher tariff level of about over R1/kWh by 2018. This is posited as enabling the alleviation of some of the considerable challenges faced by the company.