Finance minister Enoch Godongwana says the reforms aimed at addressing the deteriorating quality of services in most of the metros would help improve the local authorities’ financial positions and stop their dependence on grants.
He said by addressing the key three trading services of water, sanitation and electricity, it was hoped these reforms would help unlock the economy and improve service delivery.
The country’s local government sector continues to be dogged by fruitless, wasteful and unauthorised expenditure amounting to billions of rand, fraud and corruption, poor service delivery, and dearth of competent skilled personnel at decision-making and management levels.
In July, Rand Water CEO Sipho Mosai said municipalities owed the bulk water supplier a combined R8bn by the third quarter of 2024/25, up from about R1.5bn in 2015, placing a serious strain on its ability to function.
Rand Water supplies Gauteng’s three metropolitan municipalities, local municipalities, mines and other industries, as well as parts of Mpumalanga, the North West and Free State with an average of 3.653-million litres of potable water daily.
In an engagement session on the metro trading services reforms with executive mayors, Godongwana said in the past 40 years, “we have observed underinvestment in key network industries, namely water, sanitation and electricity.”
“This has not only created a backlog, but it has also led to an inability to continue to connect more households and firms to the network. It has also created an inability to position our cities as the most efficient providers of reliable water, sanitation and electricity,” he said.
“We need to work collectively to address this underinvestment, which has not only made our cities unattractive for investments, but it has also created financial challenges for some municipalities.”
Business Day reported in May that the National Treasury was working with the metros on a R54bn performance-based incentive that will help them with cash to fix their water, electricity and waste management services, on condition they ring-fence revenue from these services in professionally run utilities that can ensure service delivery.
This after President Cyril Ramaphosa used his state of the nation address in February to outline sweeping measures to turn around the embattled sector, which has attracted the attention of Operation Vulindlela, a joint initiative of the Treasury and Ramaphosa’s office set up in 2020 to reinvigorate the economy.
The second phase of the initiative would focus on this smallest unit of government, which has drawn sharp criticism from business leaders and citizens for its failure to roll out basic services such as potable water, electricity, clinics and refuse collection.
Ramaphosa said the government would this year work with the country’s 257 municipalities to ensure there was adequate investment and maintenance of the water and electricity systems.
Godongwana said metros could not approve developments in specific areas, “simply because there is insufficient bulk capacity. As a result, property development has not grown substantially, thus leading to the economy not benefiting from potential multiplier effects in this sector”.
“This means that metros cannot collect additional money in the form of property tax (rates) from potential developments and cannot add paying customers to water and electricity businesses,” the finance minister said.
“As the national government ... we have decided to take some steps to address the decline and underinvestment. This is through the conceptualisation and formulation of the Metro Trading Services Reform and the restructuring of the grant system by including a performance incentive.”
“Our approach is to work with you in a complementary way by creating an incentive-based grant for the trading services. This will create accountability and predictability in grant allocation to metros and the national government, respectively.”
Godongwana said the expectation was that through this incentive, the metros “will invest additional money in this targeted infrastructure through borrowing and internally generated funds.”
“In addition, we also expect the urban settlement development grant to start to be directed to invest in this critical infrastructure”.
“Through this reform, we have committed funds in the form of grants to you, and we will continue to allocate more resources in subsequent years. We want to partner with you through investing in infrastructure that has positive economic and spatial implications,” he said.
“If we work collectively towards implementing this reform the way we have designed it, it will not only unlock the economy, but it will also improve your financial position and economies. This will be instrumental in improving the financial positions of metros and reduce dependency on national government, grants in particular.”
mkentanel@businesslive.co.za
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.