National Treasury tackles creeping culture of municipal non-payment

National Treasury’s plan to provide debt relief to overstretched municipalities should hit two targets at once by reducing debt at local government level and Eskom.

Treasury outlined its new debt relief measures for 165 of the 257 municipalities that technically qualify for relief at a media presentation on Wednesday.

Municipalities owe Eskom R56 billion, but the debt relief measures should reduce this and assist in beating back the culture of non-payment that has reduced collections in some parts of the country to as low as 17% of what is owed.

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To qualify, municipalities must formally apply for relief and comply with 14 conditions imposed by National Treasury.

They will also be subject to monthly monitoring. Among the conditions for relief is a requirement for municipalities to adopt new mechanisms to deal with non-payment of electricity bills. Those that fail to comply could have their National Energy Regulator of South Africa (Nersa) licences revoked.

Another condition is that smart prepaid meters be installed by Eskom and municipalities to reduce the incidence of non-payment.

Sweeping changes for municipalities

New initiatives aimed at improving revenues include proper setting of tariffs that reflect the costs of delivering services, prepayment of services to increase upfront revenues, and measures to address variances between billing systems and the General Valuation Roll.

Municipalities seeking debt relief must update their databases of indigent customers and adopt funded budgets.

Those that meet the 14 conditions imposed by National Treasury, and maintain compliance over the succeeding 12 months, will qualify to have one third of their debt as at 31 March 2023 written off.

This will also have the effect of freezing any legal action being brought by Eskom against the defaulting municipality. A further one third of debt will be written off if the municipality remains compliant over the next financial year, with the final one third of outstanding debt being written off after the third year.

This follows recently announced measures by government to provide debt relief to Eskom. Some of these measures impact Eskom’s provision of electricity to the municipal sector.

Municipalities that choose not to opt for debt relief will have to start repaying arrears, interest and penalties to Eskom, and will no longer be exempt from legal efforts by Eskom to recover outstanding debt.

National Treasury’s local government budget analysis director Sadesh Ramjathan says the intention is to improve municipalities’ financial behaviour and reward those that remain compliant. This, in turn, should yield an improvement in consumer behaviour and reduce the incidence of non-payment.

Once submitting to the debt relief measures, municipalities will have to maintain their current accounts with Eskom and settle invoices within 30 days of delivery. Proof of payment must be sent to National Treasury and Eskom.

Budgets will have to be funded and reflect realistic funding strategies and seasonal trends. Those that are not funded must be accompanied by a credible plan to rectify this.

Revenue collection tools

One of the steps being taken to avoid misspending by municipalities is to use water and electricity as collection tools.

Any customer partial payments must be applied first to property rates, then to water, waste water, refuse removal, and lastly to electricity. This allows the municipality to improve collections by giving it the power to cut or restrict water and electricity supply.

Municipalities must achieve an invoice collection rate of 80% from 1 April 2023, increasing to 85% and 95% in the following two years. All new electricity connections must be smart prepaid meters, and no consumer debt can be written off without the installation of one of these new meters.

Provincial treasury departments must explain any non-compliance by a municipality along with measures to restore compliance. Without a Provincial Treasury compliance certificate, the municipality can no longer benefit from debt relief and must reapply.

The danger for non-compliant municipalities is that if they do not rectify the situation within one month, they risk legal action by Eskom and the potential write-off of one-third of their arrears debt.

Municipalities are also required to ring-fence water, electricity and sanitation revenue in a sub-account that must be used to pay Eskom first, followed by bulk water supplies. This is designed to prevent delinquent municipalities spending customers’ electricity and water payments on other expenditure items – a problem that has been the subject of court challenges against local governments in the past.

Municipal debt relief will also fall under the instruction of the Office of the Accountant General, says Treasury.

Read: Eskom to get a massive R254bn in debt relief