December 4 is D-Day for five municipalities with outstanding debt worth billions of rand to three water boards as the National Treasury will withhold the instalment of their equitable share and all their conditional grants due on that day unless they reach signed repayment agreements with the boards.
This is in terms of an agreement between the Treasury and water & sanitation minister Pemmy Majodina, who told MPs on Tuesday that the measure would serve as a deterrent to other defaulting municipalities. Very few municipalities were honouring their agreed upon repayment plans, she said. Finance minister Enoch Godongwana also approved of the step.
The total equitable share instalments due on December 4 to the five municipalities amount to R483m. The five municipalities which owe a combined R9.5bn to water boards are Matjhabeng in the Free State which owes Vaal Central water board R7bn, Kopanong in the Free State (R781m), Thabazimbi in Limpopo which owes Magalies water board R217m, Merafong City in Gauteng which owes Rand Water R1.1bn and Victor Khanye in Mpumalanga which owes R441m to Rand Water.
Both Magalies and Vaal Central are on the point of bankruptcy and by end-September were owed R995m and R10.3bn, respectively. The total municipal debt to water boards continues to increase and now stands at R23.7bn.
Department of co-operative governance & traditional affairs director-general Mbulelo Tshangana warned that court challenges to the withdrawals were likely. The move was not fully supported by the SA Local Government Association (Salga) which said rather than withholding resources from municipalities, they should be helped with their budgeting.
Salga specialist for water and sanitation Lubabalo Luyaba warned that the halt to equitable share payments would damage relations between municipal councils and communities and cause municipalities to collapse. He highlighted the inability of many consumers to pay for water.
DA MP Stephen Moore also feared the affect of the withholding of funds on the viability of municipalities.
The equitable share is the share of national revenue that is allocated in terms of the constitution to local government and cannot be withheld in perpetuity but only for 120 days after which the matter must be taken to parliament for approval of a further extension.
Co-operative governance & traditional affairs minister Velenkosini Hlabisa said during a meeting of parliament’s water and sanitation committee that notwithstanding the efforts to address the situation “things are getting worse. Local municipalities are not honouring their repayment commitments.”
Hlabisa emphasised that it was vital that national and provincial government departments should pay the more than R20bn they owed to municipalities and they had been given notice to pay up by end-December.
Empowered
Treasury economist Sifiso Mabaso told MPs that the Treasury was empowered in terms of the Municipal Finance Management Act to withhold a municipality’s equitable share if it committed a serious or persistent breach of the constitution, including monthly payment of invoices from bulk suppliers.
He conceded that the withholding of funds was a “drastic and measure of last resort to establish discipline in financial management at the municipalities”. It was necessary as these municipalities had failed to comply with payment obligations. He believed the measures would be a shock to the municipalities concerned.
Mabaso said the equitable share instalment would be released in portions on condition that the municipalities entered into a realistic repayment agreement with the water board and paid their invoices.
The equitable share will only be released in portions with conditions attached, for example the first portion of the equitable share to be released will be strictly used to pay water board accounts and should this condition be met then the second portion of the equitable share would be released with its own conditions.
MPs were told that the Treasury, together with the department of water & sanitation were developing a debt-relief mechanism for the water sector, similar to the Eskom debt-relief programme though not as complex with fewer conditions. This was at an advanced stage, water and sanitation director-general Sean Phillips said.
The relief programme would focus on the old debt to water boards and only if municipalities paid their current invoices in full then the water boards could write off the old debt and the old debt of the water boards to the department’s water trading entity that provides raw water to them would also be written off.
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