National Treasury has warned that municipalities' slow compliance with conditions of the debt relief programme on arrears to Eskom risk delaying debt write-offs.
According to the National Treasury's document on the Medium-Term Budget Policy Statement (MTBPS), success depends on municipalities maintaining a quarterly revenue collection rate of 85 %, which is below the National Treasury collection norm for local government of 95 %.
"Around 70 of the municipalities that had applied for debt relief have been approved. Between March and August 2024, compliance with relief conditions by municipalities improved from 55% to 76 %, aided by the National Treasury, Provincial Treasuries, and the Municipal Finance Improvement Programme," Minister of Finance Enoch Godongwana said.
The Minister was delivering the MTBPS in Parliament on Wednesday.
National government is supporting municipalities with debt relief for arrears to Eskom to be written off in equal annual tranches over a three-year period provided they comply with the set conditions.
This programme, operating on rolling 12-month cycles, aims to mitigate fiscal risks by improving compliance with financial management and revenue collection. By combining debt relief and revenue enhancement, it aims to change the nonpayment culture for municipal services and support Eskom's balance sheet.
"Rand West City is the first municipality to benefit from a one-third debt write-off. This follows its substantial achievement of the debt-relief conditions for the first 12-month cycle. More municipalities stand to benefit from this write-off of debt if they comply with the conditions of the programme. We implore provincial and national departments owing municipalities to pay their dues.
"This will enable municipalities to pay waterboards and Eskom, so that utilities can deliver these services to citizens," the Minister said.
Despite these efforts, the financial situation of the top 14 Eskom defaulters remains critical, requiring alternative solutions.
The National Treasury, with stakeholder departments and Eskom, is exploring additional strategies in this regard.
Municipalities have been encouraged to offer relief to indebted customers who pay current bills and transition to smart prepaid metering.
Eskom's financial condition
According to the National Treasury, Eskom remains highly dependent on government support through the debt-relief arrangement.
"The utility has begun to strengthen its performance, with no power cuts since the end of March 2024 and improved profitability. Its most recent financial plan also targets profitability from 2026/27 onwards. However, escalating municipal debt arrears continue to negatively affect its financial performance.
"The debt-relief arrangement granted to Eskom is intended to strengthen its balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support stable electricity supply aligned with national needs," National Treasury said.
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Given Eskom's failure to dispose of the Eskom Finance Company by 31 March 2024, the National Treasury reduced the debt-relief allocation from R78 billion to R76 billion in 2023/24.
This allocation was fully disbursed and converted to equity following Eskom's compliance with all the attached conditions. Eskom's allocation for 2024/25 will be reduced by R2 billion to R64 billion should it fail to dispose of the Eskom Finance Company by 31 March 2025.
"In April 2024, the Eskom Debt Relief Act (2023) was amended to ensure that the loan granted under the debt-relief arrangement is correctly classified and that market-related interest is charged.
"Additionally, in June 2024 the National Treasury disbursed an R8 billion interest-bearing loan as part of the debt-relief allocation for 2024/25.
"As of 27 September 2024, Eskom had paid R91 million in interest to the National Treasury for the debt-relief loans. The National Treasury is now working with Eskom to finalise government's takeover of R70 billion of Eskom's loan portfolio by 2025/26," National Treasury said.
