Portfolio Committee on Co-operative Governance 21 February 2017

Eskom has been progressing well with implementing the PAJA Process Eskom initiated the PAJA process in November 2016 Our total overdue debt including interest was R10.2bn The debt has come down to R9.5bn – interest charge is approx. R2.7bn Eskom currently has 54 (from Top 66 Defaulters) Payment Arrangements finalized supported by Council resolutions eMalahleni and Msukaligwa have defaulted on their payment agreement and are not honouring their current account. They are therefore subject to daily scheduled interruptions. The solution is to move Municipalities from post payment to prepaid meters. 4 pilots in Free State and Eastern Cape to move to prepaid meters Eskom has agreed to resolve the Top 5 issues raised by the Municipalities Days >15 >30 >60 >90 Total Overdue R’m 552 932 715 7 328 9 527

Eskom is currently addressing the Top 5 issues raised by the Municipalities 1 Eskom is proposing the Rationalisation of Municipal Tariffs to reduce tariff options from 11 to 3 Eskom will decrease the Interest Rate charged on overdue balances from Prime plus 5% to Prime plus 2.5% Eskom will change the payment period on Municipal Bulk accounts from 15 Days to 30 Days Eskom will change its payment allocation policy to allocate payments to capital first and then interest Allow municipalities to pay connections charges over a 20 year period at relevant interest rate in stead of Cash up Front 2 3 Provincial contributions 4 5 Note: Above proposals are subject to Eskom board approval and are forward looking

The total overdue debt has been growing over the past 3 years and only started decreasing after implementation of the PAJA process Total overdue debt as on 31 January 2017 (Rm) Debt overview 10 223 Total municipal debt overdue at the end of January equaled R9.527bn Top 10 overdue municipalities are overdue by R6.071bn Top 20 overdue municipalities are overdue by R7.393bn There are 66 municipalities that are overdue by more than R10M 104 municipalities have overdue debt in excess of R500k Three Provinces contributing R7.40bn FS MP NW The PAJA process has helped Eskom in recovering debt of R1.3 bn and subsequently resulted in a R700mn debt decrease from Nov 2016 to Jan 2016 Steady decrease in debt since the implementation of PAJA 9 674 9 604 9 527 9 180 7 342 6 012 5 589 6 005 5 299 4 953 4 520 4 004 3 288 2 369 2 593 R4.313bn R2.251bn R0.838bn 2 369 1 202 1 157 1 258 Dec-12Dec-12 Mar-13Mar-13 Jun-13Jun-13 Sep-13Sep-13 Dec-13Dec-13 Mar-14Mar-14 Jun-14Jun-14 Sep-14Sep-14 Dec-14Dec-14 Mar-15Mar-15 Jun-15Jun-15 Sep-15Sep-15 Dec-15Dec-15 Mar-16Mar-16 Jun-16Jun-16 Sep-16Sep-16 Oct-16Oct-16 Nov-16Nov-16 Dec-16Dec-16 Jan-17Jan-17

The Top 20 defaulting municipalities have a combined overdue debt of R7.393bn Top 20 Defaulting Municipalities as on 31 January 2017 Municipal Entity Overdue balance (Rm) MALUTI A PHOFUNG  1 679 MATJHABENG  1 206 EMALAHLENI  938 NGWATHE  644 THABA CHWEU  365 GOVAN MBEKI 352 LEKWA  277 NALEDI  218 DITSOBOTLA  197 THABAZIMBI  196 NALA  161 RANDFONTEIN  149 MSUKALIGWA  139 CITY OF MATLOSANA  137 MOGALE CITY  128 WALTER SISULU  127 MOQHAKA 125 DIHLABENG  122 NKETOANA  117 MUSINA  116

Provincial Age Analysis Municipal debt age analysis by province as on 31 January 2017 (Rm) Total overdue Province >15 days >30 days >60 days >90 days Free State 109 74 86 31 163 37 24 14 15 552 97 151 67 126 266 8 200 3 14 932 189 180 120 136 16 30 32 10 2 715 3 945 1 847 579 308 66 414 116 50 4 7 328 4 340 2 251 853 601 511 489 371 76 34 9 527 Mpumalanga North west Northern cape KEY MESSAGES: The problem of Munic/Re-distributor debt is mainly in the Free State Province. However we do see an increasing trend in all Provinces especially Eastern Cape, Gauteng and KZN. We also notice an increase in the number of Municipalities defaulting. Gauteng Limpopo Eastern cape Kwazulu natal Western cape Total

2019/05/11 Average debtors days are worsening and overdue debt in excess of 54%... Soweto and Munics biggest contributors Electricity debtors age analysis, R million Total Within due date < 60 days overdue > 60 days overdue Large power users, excluding municipalities  7 174   6 540 101 533 Large power users, municipalities (including interest)   15 225  5 698 1 484 8 043 Small power users   2 881 1 615 153 1 112 Soweto (excluding interest)   5 291 63 69 5 159 International customers 8  6 1 Total at 31 January 2017   30 579 13 922  1 809  14 848 % of total 46% 6% 48% Jan 2017 Jan 2016 Average debtors days (all categories incl. SADC) Average debtors days (excluding Soweto, SADC and municipalities) 66 21 55

Soweto remains the Eskom supplied area with the largest outstanding debt Small Power Users Debt per province (Rm)1 (Soweto shown separately) Debt per province (Soweto shown seperately) Eskom debt control measures Eskom normal debt control measures include: Issuing of notices Disconnection Debt collectors Smart and prepaid meters Eskom’s debt collection efforts have been focused on Soweto, the area with the largest debt by installing smart and prepaid meters Eskom’s year to date Smart meter results: 10 071 meters installed 10 404 meters converted to prepaid    Soweto 12 081 Gauteng(excl Sow) North West Limpopo Kwazulu Natal Mpumalanga Eastern Cape Western Cape Free State Northern Cape Total 13 231 1.Values include interest 8

Conclusions Eskom Appreciates the support from the ministers of DPE, CoGTA, NT to address the situation and commit to support efforts to improve the situation Eskom’s Sustainability is essential for the economy of South Africa The escalating trend in municipal debt seen over the past 3 years is not sustainable Eskom is monitoring the adherence to payment arrangements and will implement PAJA if and when required Provincial contributions