If Eskom's tariff increases are approved, municipal debt to the power utility — currently at R75bn — will rise as an increasing number of consumers default on payments. And those who can afford to will install solar power, leaving Eskom with even less revenue.
This is the gist of arguments made by municipalities to the National Energy Regulator of South Africa (Nersa). The deadline for written submissions on the proposed tariffs was Friday. A public consultation process kicks off in the Western Cape on November 18 and finishes in Gauteng on December 4.
Eskom is seeking a 36.1% tariff increase for direct Eskom customers and a 43.55% hike in municipal tariffs.
This week municipalities told the Sunday Times that if approved, the tariff hikes would compromise their financial viability.
Concerns also included possible unrest and the attachment of property and bank accounts of defaulting municipalities by Eskom.
Ahead of the Friday's closing date for stakeholder comments on the consultation paper on Eskom’s revenue application, Gauteng municipalities joined forces and consolidated their positions on the proposed tariff increases.
The South African Local Government Association (Salga) said the increases would be a shock to the municipal system.
Salga's head of electricity and energy, Nhlanhla Ngidi, said the proposed tariff increases would be damaging to municipalities already struggling to collect revenue.
“We have been rejecting these above-inflation increases but Nersa has been approving them despite our objections,” Ngidi said.
He said the rising cost of electricity was driving ratepayers such as big corporates to find energy solutions that were cheaper than Eskom, leaving municipalities with “diminishing revenue”.
“Electricity prices are fast-tracking the defection of high-paying customers, leaving us with customers who cannot afford to pay,” Ngidi said.
He said their calculations show that electricity tariffs have increased by more than 300% in the last 10 years.
“At this point, we are at a crossroads as Eskom does need this revenue... [yet] all the big corporates and big industries are transitioning as it doesn't make business sense to accommodate these big tariff increases.”
Ngidi said research showed that reaching a cost-reflective tariff meant tripling what South Africans were currently paying.
“We need to manage that [trying to reach a cost-reflective tariff] because the customer is not going to accept that, and there's going to be unrest.”
The City of Joburg will not be able to collect the debt... we feel we need a national dialogue about this
— City Power spokesperson Isaac Mangena
The City of Johannesburg said most of its ratepayers were struggling to pay for electricity.
City Power spokesperson Isaac Mangena said the municipality was also struggling to afford to buy bulk electricity from Eskom.
“The amount of money we are spending annually is increasing.
“The City of Joburg will not be able to collect the debt... we feel we need a national dialogue about this.”
Energy and electricity minister Kgosientsho Ramokgopa said he was confident government could come up with an intervention that would cushion consumers from the full tariff increase.
On Friday, Ramokgopa's spokesperson Tsakane Khambane said the department was looking into possible interventions to help avoid “untenable” increases.
Buffalo City metro in the Eastern Cape said that between 2007 and 2022 “Eskom tariffs have increased by 653%, far outpacing inflation at 129%".
“The impact of these over-inflated increases is devastating, as municipalities have to pass these on to their customers and in today's socioeconomic environment customers just cannot afford to pay,” said municipal spokesperson Samkelo Ngwenya.
He said businesses in and around East London were also taking strain as some of them cross-subsidise some of the poorer customers.
“Defy recently closed its factory in Buffalo City and hundreds of people lost their jobs. Eskom's cost of supply needs to be thoroughly interrogated by Nersa and over-inflated costs denied,” Ngwenya said.
Cape Town's mayoral committee member for energy, Xanthea Limberg, said mayor Geordin Hill-Lewis, would lead “the fight for its residents and businesses during the Nersa hearings”.
“The City has warned against Eskom’s plans to hike electricity tariffs by an outrageous almost 44% for municipalities and 36% for their direct customers. The sustained Eskom tariff hikes are already leading to protests in Cape Town as residents and businesses struggle to make ends meet.”
She said if Nersa granted Eskom the “mammoth price hikes, it will not only worsen living conditions for most residents in our city, but it will also severely hurt small businesses”.
“The City is already bearing the brunt of Eskom’s rising tariffs. Some 75% of the City’s income received from electricity sales goes directly to Eskom,” she said.
Economist Duma Gqubule said the problem was that the provision of electricity was aimed at making a profit instead of a being seen as a basic right like education and health.
He said the biggest mistake the country made was assuming Eskom would raise its capital build budget from its profits.
“The capital build was about R700bn and there was no plan on how to raise that,” Gqubule said.
He said the government had no choice but to intervene as there was no way the full increase could be passed on to the consumer. The government had to fund the difference between Nersa's tariff increase determination and the inflation rate.
Gqubule said electricity was one of the biggest drivers of the cost of living and that such an increase would hurt the country's struggling economy.
Trying to operate Eskom as a profitmaking entity would lead to the creation of a “two-tier citizenship where the rich find other means, such a installing rooftop solar panels”.
Eskom says the lack of a cost-reflective tariff has been a problem since 2006 and “one of our main reasons for our financial challenges, requiring increased reliance on debt”.
The power utility said the 9.6% tariff increase it was awarded last year led to a revenue shortfall of R55bn for the current year.
The Tshwane municipality, which has been struggling to pay Eskom in recent years and has an outstanding R6bn debt, told the Sunday Times it rejects Eskom's tariff increase proposal and seeks government intervention.
The Nelson Mandela Bay Metro [NMBM] in Gqebherha in the Eastern Cape said substantial increases could have severe negative implications for both the municipality and its residents.
“The NMBM will actively participate in the Nersa public participation processes. It is crucial for the city to voice its concerns and represent the interests of its residents and businesses during these discussions,” NMBM spokesperson Sithembiso Soyaya said.
Ekurhuleni metro spokesperson Zweli Dlamini said many people were struggling to make ends meet because of unemployment and tough economic conditions.
“Exorbitant electricity tariff hikes forced us to pass the burden on to the ratepayers... this proposed 2025 increase by Eskom can only worsen the situation,” he said.
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