Eskom’s dilemma is changing remarkably quickly. Three years ago, the utility could not produce enough electricity. Today it is beginning to worry about how to sell enough of it.
There is something wonderfully improbable about this reversal, and Eskom deserves considerable credit for it. Its results for the year to March are much better than almost anyone would have thought possible at the depths of load-shedding: profit after tax more than doubled to R30.3bn, the energy availability factor increased to 65.2%, expensive diesel generation fell sharply, and South Africa has now gone well over a year without load-shedding. This is a company which, operationally at least, has undergone a remarkable recovery.
Yet the most interesting number in the results may be somewhere else entirely. Electricity sales fell 6.2% to 178TWh, despite the standard tariff increasing 12.74%. Industrial sales fell an extraordinary 22.5%, partly because of the crisis in the ferroalloys industry. Eskom now reckons it has between 2GW and 3GW of surplus capacity over the next few years.
This is a very different electricity problem.
Some of the decline reflects positive developments. Companies and households have become more efficient, rooftop solar has proliferated and private generation is growing. Some of the decline reflects rather less positive developments, including the collapse of electricity-intensive industries that historically formed the fat, reliable part of Eskom’s customer base. Eskom is consequently looking at special pricing arrangements for smelters, more exports, data centres and even a bitcoin-mining pilot.
The danger is that declining volumes collide with a tariff structure already testing the limits of affordability. If sales keep falling, fixed costs have to be recovered from a smaller pool of electricity users. Higher tariffs then encourage another slice of customers to generate their own power, reducing sales further. Eskom has done extremely well to escape the load-shedding spiral. It now needs to avoid a revenue spiral.
In that context, the peace treaty announced between Eskom and Business Leadership South Africa (BLSA) on Monday is more important than the slightly diplomatic language suggests. The two sides have been involved in an increasingly testy dispute over the future of the transmission grid, with BLSA CEO Busi Mavuso accusing Eskom’s leadership of dragging its feet over transferring the transmission assets into a genuinely independent system operator. Eskom, understandably enough, has been worried about what removing valuable assets from the group does to its balance sheet and its lenders.
They now agree on the destination: an independent transmission system operator owning the transmission assets, with the process carefully sequenced so Eskom is not financially crippled along the way. This is progress. A competitive electricity market needs a grid operator that generators can regard as neutral, while South Africa has little to gain from creating a beautifully independent transmission company next to a financially wrecked Eskom.
The more disturbing problem is municipal debt, which has now become almost surreal.
Municipal and metro arrears to Eskom increased from R94.6bn to R111.6bn in a single year and had reached about R119bn by June. Eskom’s own financial plan shows the number reaching R358bn by 2031 if the trajectory continues. Even Eskom describes municipal debt as the single largest threat to its financial sustainability.
The national government has just gone through the extraordinary exercise of relieving Eskom of hundreds of billions of rands of debt, including an R80bn payment in this financial year. The purpose was to restore Eskom to something resembling financial health. Meanwhile, another branch of the state is busily recreating the problem.
The Treasury’s municipal debt-relief programme has been a dismal failure. Of the 71 municipalities participating, only 15 had consistently complied with its conditions by the time of the 2026 budget. Eskom says only R4.2bn in write-offs had been processed by March. The Treasury has now moved towards distribution agency agreements under which Eskom can effectively take over electricity distribution functions in chronically defaulting municipalities.
It needs to move much faster. Somewhere along the line the state has confused compassion with the suspension of arithmetic. If a municipality cannot competently run an electricity distribution business, it should lose the privilege of doing so. Distribution agency agreements, prepaid bulk supply or some equivalent intervention should become the normal consequence of persistent default rather than the culmination of years of negotiation.
There is a larger point buried in Eskom’s results. South Africa is moving towards an electricity market in which Eskom will increasingly have to compete for customers, private producers will compete to supply them, and an independent transmission operator will sit in the middle. That architecture makes considerable sense.
It cannot work properly if one of the largest classes of customer is permitted to consume enormous quantities of electricity without reliably paying for it.
Eskom has pulled off the difficult part of its first rescue: it has got the power stations working. The next phase may prove more complicated.
