Pay up or face the big switch

MUNICIPALITIES are finding themselves between a rock and a dark place as they struggle to keep the lights on in the face of escalating debt.

According to the Local Government revenue and expenditure report for July - December 2022, which was released by National Treasury this week, Metropolitan municipalities are owed R154 billion, compared to R128.4 billion reported in the same quarter of last year. The largest debtor books belong to the City of Johannesburg at 28.8%, which roughly translates into R44,4bn in unpaid bills. Ekurhuleni is owed around R31bn, ethekwini R23bn, Tshwane R18bn and Nelson Mandela Bay R15bn.

Households in metropolitan areas are reported to account for R115.1bn of the outstanding debt, followed by businesses that account for R30.5bn. Debt owed by government agencies is only 5% of the outstanding debt owed to metros but that is still R7.5bn in lost revenue.

Smaller cities are owed R59.3bn in accounts payable, which is R6.8bn more than what was owed a year before. The majority of debt is owed by households, which amounts to R40.5bn. On aggregate SA ratepayers owe councils across the almost R45bn more than they did the year before, and accounts payable stood at a staggering R306bn.

Out of that national and provincial government departments owe their local counterparts R22.9bn of their total outstanding debtors. That amount could go a long way in Treasury’s plans to take on more than half of struggling state power company Eskom's debt over the next three years to help strengthen its balance sheet and operations and enable it to restructure the struggling state-owned entity.

Treasury said the government would take on R254bn of Eskom's R423bn debt that was at risk of default, to enable the utility to settle its obligations. The move will free up money for spending on maintenance and the transmission and distribution parts of Eskom's business.

According to the latest Budget Review, local government, in turn, owed water boards more than R15bn, and Eskom approximately R39.8bn at the end of June 2022. More updated reports by the power utility showed that by the end of December, the total debt owed by just 100 out of the 257 recognised municipalities to Eskom totalled R56.3bn.

Just 15 months prior to that, at the end of September 2021, the debt owed was R40.9 bn. That was an increase of nearly 40% in a little over a year. The situation is going from bad to worse.

But the electricity supply is not the only problem. Earlier this month, media reports showed that struggling municipalities owe water boards across the country a total of R14bn – nearly R10bn of which is overdue.

In a recent parliament briefing the department of Water and Sanitation Portfolio Committee revealed that an additional R8.4bn is owed to the state’s Water Trading Entity out of a total debt of R23bn, including money owed by water boards to the entity.

Eskom’s and the country’s water boards' long-term financial viability depends on its customers paying their dues, and the culture of non-payment, not only by municipalities but by all organs of state and individual household customers, is concerning.

The Minister of Finance – Enoch Godongwana – said in his budget speech that “such behaviour undermines and cripples our institutions and makes it impossible for them to deliver services. To change this, the National Treasury is exploring ways to encourage all to improve their behaviour and do the right thing.”

But as things stand, change is not going to come from the bottom. Treasury stated in the Budget Review that many municipalities continued to adopt fully-funded budgets, which makes some forms of financial distress inevitable.

Over 250 municipalities are currently managed on underfunded budgets, according to Treasury data.

The problem is SA councils are struggling to collect payments for services to residents and in turn battle to pay their suppliers. Local councils owed their creditors R86bn as of 31 December 2022.

As a matter of fact, Treasury’s figures showed the outstanding debt of R256.7bn owed to municipalities is older than 90 days.

This is historic debt that has accumulated over an extended period, including interest on arrears and other recoveries which may not be realistically collectible by municipalities.

Municipal revenue is also suffering the hit by Eskom's, and by extension water suppliers, inability to meet the demand for electricity, a situation that is set to worsen as increasing numbers of consumers who can’t get off the grid or afford the devastating decision taken by Nersa to increase electricity tariffs by 18.65% in April.

So change needs to come from the top. Pay up, or we throw the big switch! But as if municipalities continued to roll over debt, and default on payment settlement plans, praying that the threat of Doomsday never comes true, ratepayers are left in the dark and the water pipes are running dry.