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To prepay or not to prepay Eskom – that is the question…

Successful revenue protection and collection needs holistic approach – Yelland.
Acting Eskom CEO Brian Molefe

In the first two weeks of his appointment, some questionable public statements made by Eskom’s new acting CEO Brian Molefe makes one wonder whether he is receiving sound information from his executive team. Minister of Public Enterprises Lynne Brown seems to have had similar problems.

After a presentation to the Public Enterprises Parliamentary Portfolio Committee, and a media briefing thereafter that reeked of unfounded confidence and hubris, Molefe suggested that the solution to Eskom’s financial woes would be to bypass municipal electricity distributors and supply all customers with electricity in South Africa – domestic, commercial, agricultural and industrial – directly, thus extending its monopoly.

Local government, in the form of municipalities, have the constitutional right to distribute electricity. Like Eskom distribution, they purchase electricity in bulk from Eskom, operate a distribution network, and deliver electricity to residents and businesses embedded in their geographic service areas. Municipalities use surpluses from this activity to cross-subsidise and fund their other municipal service delivery obligations.

While the problems of some 20 defaulting municipalities out of a total of some 180 has been well publicised, it must certainly be galling to the significant majority of municipal electricity distributors to hear that the failing Eskom wants to bypass them all in order to use their surpluses to sort out its own financial problems.

This especially as Eskom’s own performance in distributing electricity direct to domestic and commercial businesses in areas such as Soweto is among the very worst of them all, with theft and non-payment amounting to some 83% of electricity supplied direct to the residents and commercial businesses in Soweto by Eskom. Indeed, with no end in sight, Eskom’s own theft and non-payment financial problem in Soweto alone is bigger than its non-payment problem with all 20 defaulting municipalities combined.

Molefe went on further to suggest that all Eskom customers, large and small, that currently have credit meters, and pay for electricity monthly on a 30-day credit account, should be required to change to prepayment meters. His rationale was that this would quickly resolve Eskom’s cash-flow crisis by bringing forward some two months’ revenue, amounting to about R20 billion, into Eskom’s depleted coffers.

Is it conceivable that Molefe and his executives are unaware that Eskom’s existing domestic, commercial, agricultural and industrial customers have to make a prepaid deposit amounting to three months’ electricity usage before opening a 30-day credit account? As such, electricity customers on credit meters effectively prepay even more than customers on prepayment meters, who do not pay this three-month deposit.

This means that if all credit customers were to change to prepayment meters as suggested by Molefe, the three-month prepaid deposits for credit customers would presumably have to be refunded, which would mean that Eskom’s cash flow crisis may in fact worsen rather than improve.

Finally, Molefe appears to have been led to believe that prepayment meters are somehow a panacea for all the revenue protection and collection problems experienced by Eskom Distribution and municipal electricity distributors.

This is strange, because prepayment meters were pioneered by Eskom itself in the early 1990s, and have been around for decades, alongside credit meters. Strange too, because Eskom’s long experience with both prepayment and credit meters shows that there are areas with prepayment meters having good levels of non-technical losses, and other with poor levels. The same applies to areas with credit meters.

Thus it is clear that successful revenue protection and collection are not simply a choice of meter technology, but a holistic approach where both prepayment and credit meters, and a whole range of good management, performance monitoring, credit control and enforcement practices form part of the solution.

A number of regulated tariff options, including those involving both prepayment and credit meters, are currently available and approved by energy regulator Nersa, and it would certainly not be left to Eskom’s whim or discretion to force a credit customer onto a prepayment tariff without good reason, simply to suit Eskom’s financial needs.

After neglecting the theft and non-payment of electricity in Soweto and other problematic areas for decades, there is simply no quick fix as Molefe seems to believe. The solutions will require a long haul, with commitment and support from national and local government politicians, the cabinet, relevant government departments, Nersa, Eskom, municipalities, the police, courts and correctional services. 

*Chris Yelland is the investigative editor of EE Publishers

COMMENTS   18

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Well written logical article, thanks Chris. From day one this Molefe individual struck me as just another incompetent/speak-in-slogans ANC deployee who is hopelessly out of depth in the position that he finds himself in. When, oh, when is the ANC going to grasp the nettle of reality and place a QUALIFIED person to run Eskom?
Here’s a question for Chris: Can you or Molefe explain to this simple rate payer the following…This country is supposedly on the brink of total electrical collapse yet all around me here in Bedfordview and Greenstone there are townhouse complexes rising like mushrooms across the local geography? Surely if there is a power crisis there would be a reduction/halt to such construction as these buildings simply CHEW the juice? Something fishy here…either there is NO power crisis or the Ekurhuleni town planning office is recklessly issuing the go ahead for these sites ? Anyone know which? Is this going on elsewhere in the country?

This article is not building at all…. Prepaid is the way to go. Electricity is energy, and as such it has to be treated like fuel, petrol and diesel. No one gets invoiced after 30 days. No one fuels his car if he has no money to pay for it. Electricity is as strategic as any other energy source and it must be centrally controlled and regulated by government. They can collect an electricity levy like the fuel levy and help their ailing municipalities. On the point of “in Bedfordview and Greenstone there are townhouse complexes rising like mushrooms across the local geography?”: These new developments do pay and Eskom has to get more paying customers.

“Electricity is as strategic as any other energy source and it must be centrally controlled and regulated by government.”

That is what the useless anc have done. Result: total failure. Just what do you not understand about the root cause of SA electrical problems?

The maintenance festival that was supposed to be happening last weekend?? Where is it we all braced ourselves for rolling blackouts and nothing happened. Did the turkeys finally manage to organise them selves, or did no maintenance take place or the theory being bandied about recently about Eskom scaring the public into accepting the tariff increases or else no power may be a fact.

Similar question to one I asked under a similar topic. Is anyone at Eskom going to tell us what happened? While we all hate load-shedding, for heaven’s sake stop treating us like mushrooms – in the dark with loads of s**t.

It is shocking: “Eskom’s own theft and non-payment financial problem in Soweto alone is bigger than its non-payment problem with all 20 defaulting municipalities combined.” You only reap what you sow. For decades the ANC tried to “render the country ungovernable”. The “Struggle’ taught people to burn down schools, necklace people, throw petrol bombs through shop windows and tried everything possible to destroy the infrastructure. Of course nobody paid for services like electricity and water nor taxes. The non-payment is simply a hangover from the glorious “Struggle.”

Look, I also want to see Eskom getting paid for the electricity they manufacture, but this article makes me think of something else. Should Eskom charge end-users directly, municipalities will be in a position to charge Eskom for the use of municipality owned electrical distribution networks. That will open up a whole different can of worms and Mr. Consumer will pay the price.

@ JapieM, I think we can use the municipalities as the conduit, like filling stations being the convinience outlets for oil companies. This is a no brainer.

You obviously have zero idea how the oil industry works.

They called him Mr Fix – It, based on his time at the PIC and Transnet. Well if one is candid about his business acumen then his only focus was trying to get big business to tow the line on BEE and AA and he was a bit of a cowboy at AGM’s, similarly he committed state employees pension monies to some rather dicey deals which are likely never to give satisfactory returns, so GEPF pensioners will be compromised for many year hence. At Transnet he did not move more goods from Road Transport to the railway system and I am still not sure whether they have accounted fully for the new oil pipeline and harbours are still dubious operations. So if people are expecting fireworks form this guy they will be seriously disappointed. Maybe he needs to undergo a name change to something like “The Lip” – we know he is saying something as his lips are moving but you can’t hear what he is saying

In short, privatization is the only solution. Eskom is paralyzed by political interests. There is no way the ANC will ever be able to solve the implosion of energy supply in SA.

Chris, with all due respect, this has nothing to do with Eskom monopolising the grid. It is completely inconceivable to me that 60% of municipal revenues are generated from the provision of electricity. This cross subsidisation of “services” would never happen in any well run business. Prepaid meters in Soweto and other places would go a long way to automating the process and cutting out a failed receivables collection system that exists both at Eskom and the municipalities. Flawed business practices at municipalities should not give them the right to be heard. And in the longer run, both of these entities will be disintermediated by the renewable energy sources that are becoming increasingly efficient and affordable. Molefe’s suggestions have great promise and give me hope that someone is doing something. So we can either fling dung at him or put all of our public weight behind his decisions and offer alternative solutions (which are sadly lacking in this piece of yours). Mr Molefe has a strong track record at Transnet – lets be part of the solution and not the problem…

Please correct me if I’m wrong, but any meter, pre-paid or credit, can still be bypassed by an illegal connection, so it won’t make a difference to people who are determined not to pay. The only thing they seem to pay for is Dstv judging by the masses of dishes seen in the “poorer” areas.

I believe that nobody will correct you. That is why Soweto virtually gets free electricity. Eskom and its political drivers are too scared to do anything about it. I would like to know, given this fact, if Soweto is the prime candidate for load shedding. The choice of areas to be subjected to load shedding should apply regularly to all areas with the highest bad debt percentage. Why should a majority of paying customers be subjected to sharing the black-outs?

What an excellent article. Well done. This is the sort of information that is just not available in the Cape Times any longer due to it’s love affair with Cancer and subsequent hysterical obession with race. Print media s/be publishing longer, more thoughtful in depth articles to compete with online. Instead they have gone the populist moron route and continue to dig their own graves. Hope that much more of this type of informative article will be in Moneyweb.

Pre paid metering electricity theft is more difficult to identify. Customers often by-pass these meters, avoiding being red-flagged by purchasing vouchers, enough to allay suspicion. If cell phone companies can monitor and force payment of air time why can’t electricity distributors do the same with electricity? No consequences for failure, that is the problem. Taxes bail them out every time.

Well I guest the esteemed Soweto residents don’t like the Idea of prepaid if the protests are anything to go by. Yesterday Tesla announced that its latest “power wall” battery/solar set will be coming to RSA. This means a simply affordable way to go off grid or partially off grid.

From earlier reports, this will be priced at about R36000, so not affordable to many.

End of comments.

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