South Africa's Pricing Reform Masks the Real Problem: Who Bears the Cost of Non-Payment

South Africa's Electricity and Energy Minister Dr Kgosientsho Ramokgopa has unveiled a revised pricing policy to tackle what he frames as municipal overreach: affluent customers paying inflated tariffs to cover the debt of non-paying households ^[1]. He is correct that cost-shifting occurs. But his diagnosis names the symptom, not the disease.

The mechanism at work is simple. Eskom, South Africa's dominant utility, sets a wholesale tariff. Municipalities then apply their own distribution markup and decide how to allocate that cost across customer classes. When a municipality has revenue losses from non-payment, it has three levers: raise tariffs on paying customers, cut service, or absorb the loss. Ramokgopa argues municipalities are choosing the first, charging time-of-use customers (typically higher-income) a premium that subsidizes default ^[1]. The revised pricing policy will forbid this cross-subsidy, requiring instead that municipalities recover costs through "efficiency" and debt collection, not tariff design ^[5].

Here is what Ramokgopa is not saying: the policy requires cost-reflective tariffs while promising to protect low-income households through an expanded Free Basic Electricity allowance, possibly from 50 kilowatt-hours to 150 kilowatt-hours per month ^[6]. Cost-reflective means poor households pay the full marginal cost of their consumption above the free tier. That is not a subsidy; it is a price floor. The question the policy leaves unanswered is where the money comes from to fund the expanded free allowance if municipalities cannot use tariff design to shift costs. The answer, buried in consultation documents: Treasury and municipalities must plug the gap through "fixing leakage," meaning stopping corruption and misappropriation of subsidies ^[6]. That is politically easier to say than to enforce.

The reform also unpacks the electricity bill into generation, transmission, distribution, and retail components ^[6]. Transparency is useful. But granularity without discipline is just visibility into who is losing money. If Eskom's generation costs are high because its coal plants are aging and underutilized, or because it is burning expensive diesel to fill gaps, consumers see that line separately. They do not have a lever to change it. Meanwhile, municipalities still must balance their budgets; if they cannot cross-subsidize, they either raise the fixed charge on all customers (shifting the burden from use to mere connection), increase volumetric rates, or lower service. The policy does not prohibit fixed charges; it simply redraws where the pinch lands.

The deeper issue Ramokgopa's reform does not address is that Eskom's debt and inefficiency are baked into the tariff at the utility's cost-recovery point, not at the municipality's retail counter. Between 1 and 2.5 percentage points of every Eskom tariff is due to non-recovery of debt owed by municipalities ^[1]. That is a revenue-requirement problem, not a rate-design problem. Cost-reflective tariffs alone cannot fix that; what is needed is accountability at the source: either Eskom must enforce collections against municipalities, or Treasury must capitalize Eskom's bad-debt reserve and prevent tariffs from having to carry it. The policy is silent on this.

For ratepayers in affluent areas, the revised policy will likely mean lower bills; tariffs will no longer include the implicit markup for municipal default. For poor households, the outcome depends entirely on whether the free basic electricity allowance actually rises and whether municipalities receive the transfer funding to make it whole. For municipalities, the policy strips away the one tariff-design tool they had to balance non-payment. If debt collection does not improve, municipalities will be forced to cut service or raise fixed charges, which hits poor households hardest because the fixed charge is regressive.

The reform also sets a timeline: Ramokgopa is publishing the revised policy for public comment on August 21 ^[6], following Cabinet approval on July 30 for consultation ^[6]. This replaces the 2008 framework and aligns with the Electricity Regulation Amendment Act and Eskom's unbundling ^[6]. The comment window and regulatory process will determine whether safeguards for low-income protection are baked in or merely aspirational.