The prosperity of Johannesburg is vital for South Africa, yet the city’s electricity supply now faces serious threats. Its unresolved R5.3 billion debt to Eskom has led to significant repercussions just last week.
Thanks to Electricity and Energy Minister Kgosientsho Ramakgopa, Eskom has provided the City of Joburg (CoJ) a temporary 30-day reprieve by halting the Promotion of Administrative Justice Act (PAJA) process, the necessary legal steps before cutting the electricity supply.
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In spite of this, Eskom pointed out that Johannesburg did not meet the critical 5 June deadline for settling its current account, despite having paid R1.2 billion towards its accounts since the PAJA proceedings began.
As a result of the missed deadline, Eskom is resuming the PAJA process, which may lead to a suspension of electricity supply to City Power.
The city’s troubling financial state complicates the resolution of its legacy debt. Our analysis reveals that Johannesburg is, on average, almost a year overdue in payments to suppliers, with Eskom being no exception. This week, the BLSA Council is convening to assess Johannesburg’s difficulties and seek business support for its recovery. There remains much to be accomplished.
Johannesburg continually underachieves in revenue collection based on its own budget projections. The city allocates inadequate resources for infrastructure maintenance and even less for new investments. Operational costs consume the majority of its budget, limiting its ability to provide essential services necessary for business viability and economic growth.
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While Johannesburg is one of several municipalities in debt to Eskom, it is the most prominent example, making the resolution of this debt paramount for Eskom’s financial recovery. This debt highlights broader issues of mismanagement within the City, posing serious risks to the overall economy.
Revitalizing Eskom’s financial health is crucial beyond the scope of Johannesburg.
This stability is vital for Eskom and is essential for achieving the competitive electricity market we aspire to. The business sector is committed to addressing the municipal debt crisis confronting Eskom.
Reform roadmap
At the same time, we must push forward the broader electricity reform initiative advocated by the National Electricity Crisis Committee in recent years. This plan is designed to establish a competitive electricity marketplace where multiple suppliers compete for customers.
Key to this strategy is the creation of an independent transmission system operator (ITSO) serving as a neutral mediator for grid access.
From our policy perspective, this intermediary should hold ownership of the grid’s assets, rather than merely operating them for Eskom. Ownership is crucial to prevent self-interested practices within the network, ensuring equitable access for all competitors.
President Cyril Ramaphosa endorsed this perspective in his State of the Nation Address in February, following Eskom’s announcement of an ITSO while retaining asset ownership, a stance reiterated by a Presidency statement earlier this month.
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Asset ownership is critical for two main reasons. First, it provides the most direct route for attracting significant new investments into South Africa’s grid infrastructure.
Secondly, it is fundamental for creating a genuinely fair market. Suppliers need assurance of equitable grid access without favoritism toward any specific competitor. An operator managing the grid without ownership resembles a competitor in a race also serving as the referee.
The unbundling of the ITSO has faced substantial delays, and a concrete implementation timeline still remains elusive. President Ramaphosa’s task force, charged with finalizing the unbundling, has received an extension to submit its report by the end of June.
This extension coincided with the Presidency’s confirmation that the ITSO will indeed own the transmission assets. However, unbundling presents complexities, as Eskom has numerous lenders requiring assurances that restructuring will not compromise their rights as creditors. Successful utility restructurings have occurred worldwide where genuine commitment is present.
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The business community shares that commitment because the potential benefits are considerable: not only more reliable electricity but also long-term price reductions. Since load shedding began 18 years ago, electricity prices have soared tenfold, significantly outpacing inflation.
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Prior to that period, electricity prices were unsustainably low, resulting in significant underinvestment in generation capacity.
The solution lies in a competitive market that allows for proper price discovery, with various providers vying for customers. This market dynamics is essential for restoring our economy’s competitiveness.
Years of relentless electricity price increases have eroded the competitiveness of many energy-intensive manufacturing sectors, accelerating an unwanted deindustrialization. Tackling this issue requires not only a competitive electricity market but also an independent transmission operator that all suppliers and consumers can genuinely trust.
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The business community is ready to collaborate with trustworthy public sector partners committed to executing action plans, whether it involves the City of Joburg, Eskom, or other state-owned entities. However, this support depends on a genuine commitment to adhering to established policies, as policy compliance is what will catalyze economic growth.
We are prepared to assist Eskom in recovering its debts. However, we remain equally focused on ensuring that the electricity market that emerges from this process is fundamentally and structurally competitive—true reform, not just in name.
*Busi Mavuso is the CEO of BLSA
