Eskom has welcomed Finance Minister Enoch Godongwana’s formal endorsement of the Distribution Agency Agreement (DAA) intervention for addressing municipal arrear debt, which had climbed to R105-billion as of the end of September.

CEO Dan Marokane told the Parliamentary Portfolio Committee on Electricity and Energy that the DAA was but an interim solution to halting the steep climb in outstanding payments and would have to be followed up by a “fundamental restructuring” of the distribution sector to make it viable.

“The issue of municipal debt is no longer an Eskom problem, it’s a country problem and we have requested support.

“We are happy that the discussions that we have invested in over the last seven to eight months with the National Treasury and with the South African Local Government Association (Salga) have really led us to a point where the Minister of Finance was able to articulate the position that he did last week (November 12),” Marokane said.

He made no reference to Salga’s previous objections to the DAA, having recently described the mechanism as “a backdoor takeover” of municipal functions by Eskom.

Marokane said refinements had been made drawing on lessons from the initial DAAs that had been implemented, but did not provide details.

He said only that upcoming agreements would be structured as “win-win” solutions, whereby municipalities gained from improved revenue collections and Eskom was able to secure payments.

He also used the platform to welcome Godongwana’s endorsement of the mechanism in the Medium-Term Budget Policy Statement (MTBPS); one which highlighted widespread non-compliance by those municipalities that had signed up to the National Treasury’s debt-relief scheme.

The scheme allows for the write-off of arrear debt owing to Eskom should various conditions be met, including keeping current accounts up to date.

“While 24 municipalities have qualified for the first one-third write-off after 12 consecutive months of payments and 21 have generally maintained payments, as of 7 May 2025, 47 municipalities remain in default,” the MTBPS document stated.

However, Eskom revealed that only 9 of the 71 municipalities that were signed on to the scheme were currently paying their current accounts.

With Godongwana’s endorsement, Eskom expected the DAA to be integrated into the debt relief programme, with targeted write-offs of up to R62.6-billion for compliant municipalities.

CFO Calib Cassim told the committee that the municipal debt problem posed a significant risk to Eskom’s recovery and could nullify the R230-billion debt relief that had been extended to the utility by the National Treasury.

Cassim has stated previously that the debt could exceed R300-billion by 2030 unless arrested, and told lawmakers that it also threatened any recovery to Eskom’s credit rating, which currently stood three notches below an investment grade.

R25.9BN INTERIM PROFIT

After reporting a R23.9-billion profit for the 2025 financial year as a whole, Eskom reported a R25.9-billion profit for the first half of the 2026 financial year, up from the R17.8-billion profit recorded in the same period last year.

The increase was attributed to the 12.74% tariff increase implemented on April 1, with sales having declined period-on-period by 3% to 92.8 TWh.

Eskom historically makes the bulk of its profit in the first half of its financial year, which coincides with the high-demand and high-tariff winter period when little maintenance is done.

Nevertheless, the group is on track to deliver another profit for the full year and is aiming to increase its investment grade credit rating before returning to the debt markets in about 18 to 24 months to help fund its capital investment programmes.

“But when we discuss this with the rating agencies, their biggest concern is that they do not see how we are addressing the municipal debt.

“Until we close that issue, I think it’s going to be very difficult to convince the rating agencies to upgrade Eskom,” Cassim said.

Pressed on what Eskom would do if the DAAs failed to address the problem, acting group executive for distribution Agnes Mlambo said that it would now seek to broaden the use of the DAA mechanism, which Eskom viewed as a collaborative intervention given that it was temporary and did not affect a municipality’s licence.

Failing that Eskom could seek to have a municipality disconnected in line with Promotion of Administrative Justice Act processes, or it could even approach the courts to have a municipal distributor’s licence revoked.

“Of course that is a last resort, and it is not our intent. Our intent is to make the industry work and that is why we are pursuing the DAAs aggressively,” Mlambo said.