Eskom has identified 14 municipalities for the implementation of five-year Distribution Agency Agreements (DAAs), a controversial mechanism for dealing with arrear debt owed to the utility that now has Cabinet approval.

Acting group executive for distribution Agnes Mlambo confirmed in a briefing to lawmakers that the arrear debt owed to Eskom currently stood at R105-billion, with the 14 municipalities representing 58% of this outstanding debt.

She also highlighted the steep rise in municipal debt owed to Eskom, from R20-billion in Eskom’s 2019 financial year to the current level.

Eskom has warned previously that the debt could breach R300-billion by 2030 if left unchecked, which could undermine its financial recovery, as well as the unbundling of its distribution business.

The municipalities being prioritised for DAAs are located in Mpumalanga, the Free State, North West and Eastern Cape and currently have average payment levels of only 31%. This in contrast to average Eskom payment levels of 94%, including 99.8% from non-municipal customers and 87.9% from municipal customers.

The identified municipalities include Emalahleni, Matjhabeng, Govan Mbeki, Lekwa, Ngwathe, the City of Matlosana, the City of Mbombela, Thaba Chweu, Moqhaka, Enoch Mgijima, Disobotla and Dihlabeng, as well as the DAAs already in place at Maluti-a-Phofong and Emfuleni.

The two active DAAs at Maluti-a-Phofong and Emfuleni were the outcome of court processes and Eskom confirmed that they had not performed as initially expected in ensuring a recovery in payment levels.

Payment levels in Maluti-a-Phofong currently stand at only 25% despite an initial recovery to over 40% after the signing of the DAA in May 2023, while they are at 66% in Emfuleni, having been closer to 70% when the DAA was signed in October 2024.

Nevertheless, CEO Dan Marokane expressed confidence that the performance of the DAAs would improve now that the mechanism had the support of both the National Treasury and Cabinet.

He argued that this support would allow for the mechanism to be implemented more collaboratively than was the case previously, where the DAAs were the outcome of adversarial legal processes.

As a result, there had been resistance to the initial DAAs which led the municipalities to either discourage direct payments to Eskom by consumers, or withhold revenue even when collections had increased on the back of the installation of smart meters.

“The importance of the National Treasury having endorsed this approach is that it is no longer Eskom alone continuously trying to get alignment and collaboration with the municipality.

“We now have the added benefit of the National Treasury on our side to force some level of collaboration in terms of behaviours expected once we start on this journey,” he said, adding that the lessons learned from the initial DAAs also meant that it would employ additional levers to encourage a change in behaviour.

That said, he acknowledged that ensuring a turnaround would not be an easy process as each municipality was different and Eskom staff would, thus, have to be flexible in the way they implemented the DAA in each case.

He stressed that the intention was to help municipalities improve metering and billing systems, while raising collection and service levels to leave them in a better position at the end of the five-year period than was currently the case.

That said, the initiative could still face resistance, as it involves a ringfencing of electricity revenues to ensure payment to Eskom, which could affect other services, as well as handing over billing and revenue collection to Eskom.

In addition, any capital investment would be paid for through municipal funding mechanisms and the National Treasury would disburse the grant for the free basic electricity allowance through Eskom rather than the municipality.

Electricity and Energy Minister Dr Kgosientsho Ramokgopa backed the DAA mechanism, arguing that it was a temporary intervention to arrest the rise in arrear debt that left municipal distribution licences intact.

He said it was a response to a specific problem and should not be conflated with the broader reform of the electricity distribution industry that would be considered in parallel.