For years local governance experts and ratings agencies have been warning of the pending financial collapse of SA’s municipal sector, but the situation has been allowed to fester to the point at which two thirds of SA’s 257 municipalities are now in serious financial trouble.
This poses a huge threat to the country’s economic growth prospects. So, the news that the Treasury has finally taken the gloves off — after years of ineffectual intervention in this sector — should be welcomed.
The Treasury’s plan is to write off all R57bn of municipal debt to Eskom in exchange for wholesale behaviour change. Unless defaulting municipalities meet 14 onerous conditions (every month for the next 36 months, in rolling 12-month cycles) they will not get a 100% debt write-off at the end of it.
The conditions are designed to restore basic financial management best practices in a sector that has got used to operating with impunity.
Part of the problem has been the ANC’s policy of cadre deployment, which has facilitated the deployment of political cadres to senior administrative positions for which they mostly have little, or no, qualifications — a practice that has destroyed technical professionalism in many municipalities.
According to the auditor-general, 90% of municipalities fail to comply with existing legislation. So, it doesn’t help that the law already holds municipal accounting officers personally responsible for the theft or wastage of municipal funds, or that there are minimum standards requirements for councillors.
Under the constitution, the national government has always been able to intervene directly in the management of a dysfunctional municipality, but it has been extremely reluctant to exercise its oversight powers. Where it has intervened, any improvements have generally been limited.
Given that all of the government’s attempts to halt the municipal debt spiral have failed, why should the Eskom debt write-off plan be any different?
First, it starts from the right premise, recognising that the crux of the problem in SA’s municipalities is that there is a leadership culture of not enforcing debt collection, and a consumer culture of refusing to pay for services, coupled with a persistent crisis of financial mismanagement.
Second, it rightly sees the solution in prohibiting unfunded expenditure while dramatically improving municipal revenue collection. This means that to qualify for debt relief municipalities must charge cost-reflective tariffs, progressively install prepaid meters, cut off water and electricity supplies to defaulting households, and adopt funded budgets, among other things.
Whether the plan succeeds will depend on how badly municipalities want their Eskom arrears written off, how highly they value their financial sustainability, and how much of a consumer backlash they are prepared to endure to achieve this.
The plan will fail if municipalities don’t get intense technical support from provincial treasuries to install the internal controls and functional revenue management systems to be able to comply with the conditions.
It will also fail if municipalities consider the political costs of compliance too high. The Treasury has not factored in the problem of affordability other than to say it will give municipalities three to five years to phase in some of the more onerous requirements.
Expecting municipalities to hike bulk tariffs to cost-reflective levels while simultaneously playing hardball with defaulting households could inflame violent social unrest — and few politicians have the mettle to stare down this kind of opposition from their voting base.
I think the odds of the plan’s success are low, but I am encouraged by the fact that in the Western Cape the average municipal revenue collection rate is 93%, compared to just under 80% nationally. This shows that most consumers are willing and able to pay for bulk services if they are correctly billed and actually receive a service in return.
This is crucial since it suggests that affordability is not the real problem. For everything else there is a technical solution just waiting to be deployed — if only SA’s political and administrative leadership can find the will to do so.
• Bisseker is a Financial Mail assistant editor.
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