If structural decay is not stopped in its tracks, the recent protests in Bethal could herald the start of a popular movement against municipalities and government and their failed monopolies.
By its own admission, Eskom is in a “death spiral”. Bloomberg has stated “if it were to cease operating or the grid were to collapse, South Africa’s economy would grind to a halt and many businesses would be driven into bankruptcy, triggering investor flight and multiple downgrades to the nation’s fragile credit rating – as well as potential social unrest. Power cuts have already weighed on South Africa’s rand and bonds, and present a huge risk to smelters, mines and other energy-intensive businesses”.
With a mounting cumulative debt of more than R450-billion, which it cannot service from revenue, Eskom, which supplies virtually all of SA’s power, is regarded as a major risk to SA’s finances.
Municipal debt is a significant factor. As of 30 June 2019, Soweto alone owes Eskom R18.9-billion in unpaid bills – accounting for more than half of total arrear debt (plus interest). Municipalities and individual users owed Eskom more than R36.5-billion as at 30 June 2019. The current figures are significantly higher.
Empowered by a Pretoria High Court ruling in September 2017 affirming Eskom’s right by statute to disconnect defaulting customers and the current bout of load reductions, cut-offs and disconnects where illegal connections are rampant have plunged paying customers into darkness, affecting lives and livelihoods.
Public anger is on the rise and protests are mounting across the country. The Democratic Alliance (DA) has highlighted the recent case in Bethal where paying customers are cut off from supply because municipalities (ANC-run in the main) have not paid over to Eskom monies collected from residents. The DA has instructed all municipal DA caucuses in affected municipalities to lay criminal charges against mayors and managers who have made no provision for payment and who have defaulted.
Responsible, paying citizens are caught in the middle. The utility’s CEO, André de Ruyter, is on record as saying, “we don’t have the luxury of abundant support from the fiscus, regardless of what happens after Covid-19,” while delinquent municipalities are ratcheting up debt levels through non-payment.
By comparison with the long list of defaulting municipalities, the DA-run municipality of Stellenbosch provides an example of local government – a result of prudent financial management – that is in a position to assist financially strapped residents impacted by Covid-19 by suspending rate collections for three months. The municipality is working with residents to repay the principal outstanding debt on reasonable terms and without the accrual of any new interest once the coronavirus crisis is over.
This is in line with Covid-19 National Command Council’s policy, chaired by President Cyril Ramaphosa, which states that services should not be interrupted if their closure would endanger the lives of local community members.
While timely payment of electricity accounts by municipalities to Eskom would alleviate cash flow and go some way to ameliorating the parlous circumstances of electricity-dependent residents and businesses, it will not deal with the structural problems that beset Eskom. Until the disruption factors impacting the power sector (as highlighted by a PwC/Booz Allen study) are addressed in terms of customer behaviour, competition, production service models, distribution channels and the impact government and regulation are attended to, the dire situation will persist.
The government cannot control the entire value chain. It needs to become an enabler of new business models. This requires an open mind and not the hidebound attitudes of Minister Gordhan, mired in his command and control mindset. It requires transparency, and on that basis needs to be open to partnerships, joint ventures and merger and acquisition strategies.
The rating agency, Fitch’s downgrade of Eskom SOC Holdings in April 2020 which followed the sovereign downgrade of South Africa, was predicated on the agency’s “view of the strength of the links between Eskom and the state under our Government-Related Entities Rating Criteria”.
This makes plain how the (mis)fortunes of Eskom and SA Inc are inextricably bound up. If Government fails to undertake significant structural measures to fix the debacle and if, in the interim, criminally offending municipalities continue to default on payments due we may well reach a tipping point, with the recent protests in Bethal heralding the start of a popular movement against mayors and managers and governments and their failed monopolies. The writing is on the wall – the authorities best take heed. DM