In a bid to tackle the escalating municipal debt crisis, South Africa’s electricity ministry has expanded its pilot project designed to help municipalities manage and settle their debts with Eskom.

During a media briefing earlier this week, the Minister of Electricity and Energy, Kgosientsho Ramokgopa, said municipalities collectively owed Eskom R78 billion (their customers owe them R349 billion).

To address the crisis, Eskom has been in discussions with the South African Local Government Association to develop a sustainable solution with the goal to protect low-income households from steep electricity tariffs while ensuring customers who regularly pay their bills are not penalised, he said. “We are working closely with the private sector and have identified an innovative approach that we believe could serve as a model for resolving this issue.”

The proposed solution involves a pilot project that has already been tested in three municipalities: Kamiesberg and Nama Khoi in the Northern Cape and Dr Beyers Naudé in the Eastern Cape. Launched by National Treasury in March 2023, the scheme aims to address widespread non-payment issues by allowing municipalities to have their debt to Eskom written off over time, contingent upon meeting 14 specific conditions, including maintaining current account payments.

Ramokgopa noted that the pilot draws on private-sector innovations and could be applied to municipalities that participated in National Treasury’s debt-relief programme as well as those that did not apply or qualify. However, he said many municipalities in the scheme were failing to meet the 14 conditions set by National Treasury. “Currently, 78% of the municipalities in the programme have defaulted, indicating that the existing approach is ineffective. We need a different solution; financing alone is not enough to address the broader problem.”

For municipalities involved in the National Treasury scheme, the aim is to help them meet the conditions required for debt write-off. “Even if municipalities have not applied for the write-off, they can still benefit from this intervention by addressing their debts and ensuring current account payments without compromising their financial viability,” Ramokgopa said.

Although specific details of the intervention were not disclosed, he acknowledged that many municipalities face not only financial constraints but structural issues that must be addressed to ensure timely payments to Eskom. The expanded pilot project will assist municipalities, including those not enrolled in the write-off scheme, with debt settlement and financial management.

“In the second phase of this pilot project, we will select two municipalities from each province – specifically those with the highest debt to Eskom – to rigorously test the solution. Participation in the project will be voluntary for municipalities,” Ramokgopa pointed out.

The initiative will work alongside the updated electricity pricing policy to tackle rising energy costs, which the ministry is addressing.