Municipal debt blamed on poor planning

MEC says weak revenue collection behind financial problems

Lack of proper planning, failure to collect revenue on time and rising unemployment could be the main reasons why several municipalities in the province ran into arrears on their payments to national power company Eskom, according to Cooperative governance MEC Olly Mlamleli.

Mlamleli, whose department oversees municipalities, said most of the local authorities accrued huge debts with Eskom due to poor planning and setting unrealistic financial targets when revenue collection was poor.

As of March this year, Free State municipalities owed Eskom and water boards over R3.2 billion. Eskom is owed over R1.9 billion while water boards are owed R1.3 billion. The most indebted are Matjhabeng, Maluti A Phofung and Ngwathe local municipalities.

Maluti a Phofung has since submitted a payment plan to Eskom indicating how it plans to settle its debt but Matjhabeng and Ngwathe local municipalities are yet submit. The two municipalities have not been able to access their equitable share from national treasury since March because of their failure to draw up the plans.

“The challenge is that they bill a low amount of money and set unrealistic billing that they do not meet with Eskom,” said Mlamleli.
“I think is just pure poor planning, otherwise why will you set a goal that you cannot meet? National and provincial treasury have raised concern about municipalities’ failure to collect revenue. Municipalities are owed lots of money by residents but they did not have a plan in place to collect the debts,” she said.

Mlamleli added that another reason behind municipalities owing Eskom billions is that “they do not use pieces of legislation available to them” to collect rates and taxes from those liable to pay.
“They must now find ways to generate revenue to pay Eskom. They must use the relevant legislation and bill people for things such as refuse removal, water and electricity supply,” said the MEC.
Mlamleli said the municipalities needed to urgently find ways to manage their debts because people could switch to other means of energy such as solar, leaving the municipalities with a limited revenue base.
The MEC however pointed out that said Eskom, to some extent, was not being reasonable as it did not want to accept reality on the ground as informal settlements continued to pile press on the national power grid.
“There is a challenge of informal settlement mushrooming everywhere. Provision of services to these people is not budgeted but they still need basic services such as water and electricity. This means increased billing to municipalities from Eskom,” Mlamleli said.
The Free State provincial chairperson for the SA Local Government Association (SALGA) Sebenzile Ngangelizwe admitted that some municipalities planning and managing their finances for lack of capacity.
But he said this was not something peculiar to the local authorities and could not be the sole reason they have faced difficulties.
He cited, for example, failure to pay rates by some residents simply because they have no appreciation why they should be paying as one of the reasons why some of them ended up owing their municipalities huge amounts of money in unpaid rates and taxes.
“This is why we have come up with Operation Patala to educate people about the necessity of paying for services and if nothing comes up, we will then take legal action against those who owe us,” Ngangelizwe said.

There are 278 municipalities in the country and they are collectively owed about R104 billion by government, businesses and residents.
However, the ANC provincial secretary William Bulwane felt that the rising unemployment was forcing municipalities to lag behind in their payments service providers.

“The majority of people in municipalities are unemployed,” said Bulwane. “The other challenge is that those who can pay do not pay and hide behind those who cannot pay. The municipal equitable share comes once a year and is not that much,” he suggested.

Bulwane is of the view that commitments made by municipalities to Eskom and national treasury on how they planned to settle their debts were just a “desperate move”.
“I do not know how they will move forward from this because conditions in their municipalities are still the same. I think Salga and treasury need to look into this thing carefully and come up with a way to help these municipalities,” Bulwane added.

Bulwane further stated that the other set-back for the municipalities is that they are “too lenient”.
“I think municipalities need to be firm and collect from those who owe them. Operation Patala should be used to help change people’s mindset,” according to Bulwane.