FORMULA FOR FAILURE OP-ED: Fenced in — why City Power’s ‘ringfencing’ in Joburg is a 30% revenue grab

From 1 October 2026, City Power is officially “ringfenced”. So says a letter to customers dated 21 September 2026 from the utility’s acting CEO, Charles Tlouane. But in reality it’s ringfencing in name only. 

Read the letter closely, and it describes something quite different. The City of Johannesburg (CoJ) will carry on collecting every rand that customers pay for electricity. It will keep 30% off the top. The remaining 70% will be passed to City Power within 48 hours. 

That is not ringfencing. It is a first charge by the shareholder on the gross revenue of a company that already cannot cover its costs. 

What the letter says – and does not say 

Most of the seven-page letter “reassures” customers that nothing has changed. The billing stays the same. The account numbers stay the same. The payment channels stay the same. There is no City Power bank account to pay into. 

The substance sits in one sentence: “70% of electricity revenue collected on behalf of City Power will be transferred to City Power within 48 hours of collection, while the City of Johannesburg will retain the remaining 30%.” 

The letter does not say what the 30% is for. It does not say how the figure was calculated, or what City Power receives in return. It does not say what becomes of City Power’s internal overdraft with the City, which reportedly stood at about R19.1-billion on 31 March 2026.     

City Power, the letter says, will then manage “its allocation”. The word is revealing. A company earns revenue. A municipal department receives an allocation. 

The letter is signed on behalf of an acting CEO, at a utility that has seen sustained high turnover in its board, CEO, CFO and COO posts since 2017. 

Ringfenced 26 years ago – on paper 

City Power is not a municipal department. It is a company, established in November 2000, with its own board, its own executives and its own financial statements. CoJ is its sole shareholder. 

Creating a ringfenced electricity business was the very purpose of corporatisation. A company was expected to bill its customers, collect its revenue, pay its suppliers, maintain its network and account to its shareholder for the result. 

That the City now presents ringfencing as a reform, 26 years later, is an admission that corporatisation was hollowed out long ago. Billing and collection were pulled into the City. Electricity revenue was swept into the municipal pool, and City Power was handed back whatever the City decided it could spare.

A report by the Centre for Development and Enterprise (CDE) entitled Powering Joburg’s Turnaround, published on 29 September 2026 in its Johannesburg Matters series, describes the result as “an opaque and potentially arbitrary financial relationship between the City and City Power”.

The income statement, upside down 

A normal electricity distribution company bills its customers and banks its revenue. From that gross revenue, it pays for the electricity that it buys, its staff, and its operating and maintenance costs. 

What is left must cover finance costs, depreciation and amortisation, and then tax. From the net surplus after tax, the board retains what the business needs to invest in its network and its growth. Only then does the shareholder receive a dividend. 

The dividend is generally at the bottom line of the income statement. It is paid out of any net surplus after retained earnings, and only if there is a surplus. 

The CoJ arrangement turns this upside-down. The shareholder is paid first, from the top line – before Eskom, before salaries, before a single transformer is replaced. It is paid whether City Power makes a surplus or a loss. And it is paid in cash, within 48 hours. 

This is not a dividend. It is a guaranteed 30% levy on gross cash collected. 

The arithmetic does not work 

For a typical municipal electricity distributor in South Africa, bulk purchases from Eskom make up about 70% of its total operating costs. 

It therefore needs to be shown that the 70% of the revenue collected that is transferred to City Power will be sufficient to pay Eskom, City Power’s technical and non-technical losses, staff, contractors, materials, maintenance, finance and network renewal costs. 

It is not sufficient; something has to give. Staff are paid first, because they must be paid. What gives is everything else. 

From 2019, a widening gap opened between City Power’s expenditure and its revenue. By 2025, the deficit was R4.3-billion, excluding capital grants and contributions.  

City Power’s overdraft with the City reportedly grew from R9.98-billion in June 2023 to about R19.1-billion by March 2026. Its infrastructure backlog is said to be at R44.25-billion. Planned maintenance and capital expenditure have repeatedly fallen below target. 

Eskom has been the other casualty. After years of disputes, City Power’s arrears of R5.25-billion to Eskom were reportedly settled in August, but there has been no official statement on where the money came from. A further R2.3-billion in historic debt remains, along with a current account of R1.86-billion that fell due at the end of August 2026. 

Customers pay the final price – significantly increasing numbers of forced interruption reports, with restoration times significantly longer than benchmarks in most developed and developing countries. 

This is the doom loop. Too little cash means deferred maintenance, refurbishment and reinvestment in the business, which in turn mean more failures and higher losses. More failures and higher losses mean even less cash. 

All of the risk, none of the means 

The arrangement gives the City certainty. Its 30% arrives whatever happens. City Power carries everything else. Eskom tariff increases, electricity theft, non-payment, cable failures and the cost of borrowing all land on the 70% of revenue it receives. 

The letter says that greater control over resources “will also bring greater responsibility”. That is the wrong way round. If City Power is to be held accountable for the outcomes, the arrangement must be shown to be able to fund what City Power is expected to deliver. 

The CDE report warns of “a material risk of structural insolvency”. A fixed 30% slice off the top line does not reduce that risk. It locks it in. 

A number without a basis 

To be fair, in principle, the billing and central revenue collection by the City on behalf of City Power is not necessarily unacceptable. A central collection arrangement could still protect City Power’s revenue if the rules, reconciliation, transfers and oversight were enforceable and transparent.  

The criticism, however, is that the announced arrangement provides no demonstrated cost basis for the 30% retention, or assurance that City Power’s remaining cash will be adequate. 

CDE’s report notes that the City committed to the 70/30 split in November 2025. It finds that “it is not clear what objective factors the 70/30 split is based on” and warns that the split “risks becoming an arbitrary rule rather than a credible funding arrangement”. 

It must be noted that the City may also have legitimate claims on electricity revenue, including support for indigent households and other municipal services provided on behalf of City Power. 

But those claims should be explicit, transparent, budgeted and affordable. They cannot be a flat percentage, set without reference to what it costs City Power to buy electricity, and City Power’s other efficiently and prudently incurred costs to keep the network up and running. 

The letter invokes National Treasury’s Metro Trading Services Reform and funders such as KfW. It is fair to ask whether either would recognise an unsubstantiated, guaranteed 30% slice off the top line as ringfencing. 

What real ringfencing requires 

Genuine ringfencing respects the structure of the income statement.

1. Operational priority: Revenue must first cover bulk electricity purchases, staffing, operations, maintenance and debt servicing.

2. Asset renewal: Remaining funds must be allocated to planned network maintenance and capital investment.

3. Social obligations: Transparent, budgeted allocations should fund indigent support.

4. Shareholder return: Only true net surpluses may be distributed to the municipality as dividends.

None of this excuses City Power’s own failures – poor management, maladministration, procurement corruption and fraud, high technical and non-technical losses, the high turnover of board members and executives, and the depletion of technical skills. These must be fixed too. 

The City has not demonstrated that even a well-run City Power could meet its obligations and sustain its network under the 70/30 arrangement. On the face of it, the arrangement would appear to destine the utility for failure in the best of circumstances, and these are not the best of circumstances.

Johannesburg votes on 4 November. Whoever governs the City afterwards should scrap the 30% slice off the top line and replace it with a properly substantiated and defensible transfer that City Power can afford. 

Until then, City Power is not ringfenced. It is fenced in. DM 

Chris Yelland is managing director at EE Business Intelligence.

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