The Dire State of South African Municipalities: A Struggle for Survival Amidst Load-Shedding

Amid frequent load-shedding and rising electricity costs, South African municipalities are grappling with financial instability as they try to maintain service delivery to their constituents. The chairman of the National Rationalised Specifications Association of South Africa, Vally Padayachee, described the situation as a "fight for survival." The country's municipalities, which collectively make up Eskom’s largest customer, are caught in a devastating cycle; they purchase around 45% to 47% of Eskom’s electricity and resell it to their residents. However, load-shedding has severely disrupted this model.

Since 2008, the load-shedding crisis in South Africa has been mounting, hampering the ability of municipalities to generate adequate revenue from electricity sales. Given that electricity sales are a principal source of income for these municipalities, the intermittent power supply means lost sales during peak times, cutting into the already slim margin of their operating budgets.

As a result of these developments, a distressing financial picture has emerged: the majority of municipal budgets are now devoted to purchasing electricity from Eskom, leaving a mere 10% to 25% for other operational costs and impeding their effective functioning. The inability to sell electricity also translates into a failure to execute the constitutional mandate of municipal service delivery, which impacts every aspect of local governance.

With municipalities already stretched thin financially, their indebtedness to Eskom has ballooned. Currently, the owed amount stands at a staggering R70 billion, up from R58.5 billion at the end of March and a vast increase from the R13.6 billion in 2018. The top 20 defaulting municipalities are in an even more precarious position, paying less than half of their invoiced amounts, demonstrating a payment level of only 46%. Yet, Padayachee argues that blaming municipalities for their inability to settle debts overlooks the structural issues at play, namely, an operating model that is no longer sustainable.

Electricity Minister Kgosientsho Ramokgopa has expressed deep concerns over the financial health of the municipalities, with some facing insolvency and others unable to raise sufficient revenue to cover operational activities. The decline in payment levels, which has gone down by 2% in the 2023 financial year to 76%, exacerbates the problem as it indicates an ongoing deterioration in their financial capabilities.

To address this crisis, it is becoming increasingly clear that the government must intervene and re-assess the existing model through which municipalities operate. This is crucial not only for the survival of the municipalities but also for them to fulfill their constitutional service delivery mandate. Without significant changes and support, the ability of municipalities to serve their communities will remain severely hindered.

As the situation continues to evolve, all stakeholders, including government institutions, municipalities, and Eskom, will need to collaborate to find a viable solution that ensures both the continuity of electricity supply and the financial viability of local governance structures in South Africa.