The South African Local Government Association (SALGA) has launched a scathing attack on the National Energy Regulator of South Africa (NERSA) for approving electricity trading licences to private entities before establishing proper regulatory safeguards, warning that the move could cripple municipal finances and compromise essential services to millions of South Africans.
The organisation, which represents all 257 municipalities across the country, expressed deep concern that NERSA’s decision to fast-track these licences without comprehensive trading rules threatens the very foundation of local government service delivery.
What are electricity trading licences?
Electricity trading licences allow private companies to buy and sell electricity directly to consumers, essentially creating competition for municipalities that currently distribute power in their areas. These traders can purchase electricity from generators like Eskom or independent power producers and sell it to businesses and households, potentially offering more competitive rates than municipal tariffs.
However, SALGA argues that without proper regulatory frameworks, these licences create an uneven playing field that could devastate municipal revenue streams while allowing private traders to cherry-pick the most profitable customers.
The municipal revenue crisis
SALGA said in a statement that electricity sales represent a critical income source for municipalities, generating revenue that funds not only energy infrastructure but also essential services including roads, waste management, and water supply. Municipal tariffs are structured to include cross-subsidisation, where profitable commercial and industrial customers help subsidise services for poorer households.
SALGA President Councillor Bheke Stofile warned that allowing traders to target only high-value, reliable customers would fundamentally undermine this cross-subsidisation model. “Electricity trading must be managed in a way that strengthens, not weakens, the ability of municipalities to deliver services,” Stofile said.
The concern is that private traders, freed from universal service obligations that bind municipalities, will focus exclusively on creditworthy customers who pay their bills promptly. This would leave municipalities with a disproportionate share of defaulting customers while losing their most profitable accounts.
The Electricity Regulation Act grants municipalities constitutional authority to distribute electricity within their jurisdictions. SALGA argues that allowing private traders to operate in these same areas without proper coordination directly infringes on these constitutional mandates.
The organisation contends that the current approach creates regulatory uncertainty and erodes municipal powers, potentially setting a dangerous precedent for other essential services.
Deepening debt crisis
The timing of these licence approvals is particularly concerning given that municipal debt to Eskom has already exceeded R100 billion. SALGA supports implementing debt-recovery mechanisms including clearing houses, restrictions in defaulting municipalities, and requiring trader contributions to subsidy pools.
Without these protective measures, the association warns that the debt crisis will intensify, further undermining both Eskom’s financial stability and the national fiscus. The loss of profitable customers to private traders could accelerate municipal financial distress, making it even harder for local governments to service their existing debt obligations.
Market imbalance concerns
Private electricity traders will be able to offer competitive tariffs to premium customers without shouldering the same universal service obligations that municipalities must uphold. This creates what SALGA describes as “predatory competition” that distorts the market and disadvantages public entities required to serve all residents regardless of their ability to pay.
The regulatory gap means there are currently no clear definitions of customer eligibility, trader rights, or protections for the redistributive functions embedded in municipal tariff structures.
SALGA has called on NERSA to immediately suspend approval of additional trading licences until a transparent and balanced regulatory framework is finalised through proper public consultation. The organisation wants to be treated as an equal partner in developing rules that protect local government’s developmental mandate while ensuring fair market competition.
Next steps and industry response
The dispute highlights broader tensions in South Africa’s electricity sector transformation as the country moves toward greater private sector participation while trying to maintain universal access and cross-subsidisation for vulnerable households.
NERSA will likely face mounting pressure to clarify its regulatory approach, particularly given that Eskom has also expressed similar concerns about the premature approval of trading licences.
The outcome of this standoff could significantly impact the future structure of South Africa’s electricity market and determine whether municipalities retain their central role in power distribution or see their authority gradually eroded by private sector competition.
For municipalities already struggling with service delivery challenges and mounting debt, the stakes could not be higher. The resolution of this regulatory dispute may well determine whether local governments can maintain their ability to cross-subsidise essential services or face a future of diminished revenue and reduced capacity to serve their communities.
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