When Eskom announced that municipal debt was the biggest threat to its finances, it set a tone that still reverberates in town halls across the country. The utility’s latest figure, R119 billion owed by municipalities as at the end of June, is not just a balance-sheet line; it is a looming risk for any small business that depends on reliable electricity.
To curb the risk, Eskom has been pushing for Distribution Agency Agreements (DAAs). A DAA is a legal contract that would allow Eskom to act as the distribution agent for a municipality, essentially taking over the delivery of power while the local authority remains responsible for billing and collection. The idea is that a professional utility can recover debt more efficiently than a cash-strapped council.
In March, Eskom warned 14 municipalities that supply could be cut off unless arrears were paid. By May the utility said there was “marked progress”: Ekurhuleni had reached a payment deal and Inxuba Yethemba had agreed to a prepaid system, where the municipality would only receive electricity it could afford to pay for. A prepaid model sounds simple, but it could also mean households and businesses go without power for days if the prepaid balance runs out.
Despite the early optimism, the legal process has stalled. Nine municipalities signed council resolutions to adopt a DAA under pressure from National Treasury, but three, Dr Beyers Naudé, Kai !Garib and Mamusa, did not respond and were served with final notices. Dr Beyers Naudé later secured a court order that blocks Eskom from cutting supply until the prescribed outsourcing steps, a capacity assessment, a tender and a feasibility study, are completed. Those steps are required to give other potential providers a fair chance to bid, a safeguard that the law places on any transfer of municipal services.
National Treasury set a 1 September deadline for the municipalities to formalise the agency role, and the Department of Cooperative Governance and Traditional Affairs (Cogta) issued a fast-track guideline to meet the legal requirements. The deadline passed without a single DAA being signed. When Moneyweb asked Treasury for a status update, the query was passed to Cogta, whose spokesperson confirmed receipt of the questions on 27 August but has not replied.
For the small-business owner, the stalled agreements translate into three practical concerns. First, the risk of load-shedding or outright disconnections remains high. Even a short outage can halt production, spoil perishable stock, or force a retailer to close its doors for a day. Second, the uncertainty makes it difficult to plan cash flow. If a municipality cannot guarantee payment for electricity, suppliers may tighten credit terms, pushing costs onto the end user. Third, the legal limbo creates a market for private power solutions, generators, solar-plus-storage, but those options require capital that many SMEs simply do not have.
While Eskom has confirmed that no prepaid agreement is in place with Inxuba Yethemba, it has issued a notice asking the municipality to respond by 22 September 2026. The lack of progress suggests that the utility’s broader strategy, using DAAs and prepaid models to recover municipal debt, is still in its infancy and vulnerable to procedural delays.
Other municipalities are watching the developments closely. The South African Local Government Association has asked for an extension to the Treasury deadline, but Treasury has remained silent. Meanwhile, legal challenges continue, as seen in the case of Merafong municipality where AfriForum is contesting the legality of a DAA that was concluded without following the prescribed process.
What does this mean for the average entrepreneur? Until the legal and financial hurdles are cleared, municipal debt will stay on Eskom’s books, keeping the utility’s own cash flow under strain. That strain can feed back into higher tariffs for all customers, including small businesses that already face rising input costs. The safest short-term strategy for an SME is to review power contingency plans, explore demand-side management, and keep an eye on any official notices from the local municipality about supply interruptions.
For a deeper dive into how municipal debt could affect your business’s bottom line, see our Markets & Finance coverage and consider using our Commercial Funding Suite to model cash-flow scenarios under different power-supply assumptions.
