Municipalities and secondary cities cannot afford for South Africans to directly receive electricity from Eskom. This view comes from Eyal Shevel, sector head of corporate and public sector ratings at Global Credit Ratings (GCR), in light of Eskom recently cutting electricity supply to some municipalities.He says South Africa’s local government sectors are structured so municipalities are responsible for distributing power to its citizens. He adds that direct power supply from the power utility would place enormous economic strain on both local and national funds. Here’s why: While some members of the public have called for delinquent municipalities to lose control of electricity distribution to consumers, Shevel says this is not a “workable” option as municipalities are structured in a way where they are reliant on electricity distribution as a source of income.
Municipalities depend on electricity revenueShevel says that on average, electricity revenue in South Africa’s eight metropolitan municipalities and 19 secondary cities accounts for 38% of total revenue. “For smaller, more rural municipalities, electricity distribution accounts for a smaller share around 24% revenue on average, but can be well below 20%,” he says. However, he points out that this source of revenue is second to government grants in these locations.
Why creating a direct link to Eskom is not a good idea“Controlling the electricity distribution also has another major benefit for local authorities, in that the threat of disconnection can be wielded to ensure payment of all municipal accounts, such as rates and taxes and sewerage,” Shevel explains. “By creating a direct link to Eskom for customers in these smaller municipalities, it would make these local governments almost entirely dependent on the National Treasury for income and impair their primary tool for enforcing collections. This is simply unaffordable for our economy,” he adds.
He says it would also place an enormous administrative strain on Eskom, especially at a time when the utility needs to be focusing on power generation and maintenance.