Municipal debtors book hits R94bn

2014-09-14 15:00

Department of cooperative governance and traditional affairs lays out plans to recover debt

On Tuesday, the department of cooperative governance and traditional affairs laid out its plans to recover R94?billion in aggregate municipal debt – but the plan only focused on 4.8% of this amount.

Two weeks ago, the Treasury reported that, at the end of June, municipalities across the country were owed R94?billion for property rates and the provision of services such as electricity and refuse removal.

Of this amount, 61.1% was attributed to households, with the rest split between commercial, government and “other” debtors.

Muthotho Sigidi, a deputy director-general in the department, told the committee that growing municipal debtors’ books could be blamed on the economic slowdown, unemployment, and a “lack of political will to collect”.

“The majority of municipalities are experiencing growth in debtors, and this indicates either a failure to implement proper debt management processes or breakdown of existing processes,” he said.

But aside from saying municipalities should collect on accounts within 30 days, he did not present a plan on collecting household or commercial debt.

Most of the presentation was spent on government debt, which comprises 4.8%, or R4.5?billion, of the total amount owed to municipalities.

Sigidi elaborated on the history of this debt, its current status, activities of the intergovernmental task team formed to tackle it, and the 20 municipalities that are owed more than half of the total debt owed by government.

Most government debt revolved around outstanding property rates that still needed verification, and was earning interest as it remained unpaid.

According to Sigidi, an amount of R3.4?billion was needed for the verification exercise.

Karen Heese, an economist at municipal data service provider Municipal IQ, said government debt amounted to a sizeable figure that could assist many “out-of-pocket” municipalities. She believed the department focused on government debt because of a commitment made in a 2009 turnaround strategy to help municipalities by ensuring other spheres of government settled their accounts.

“This is where national and provincial government has leverage. Where there has also been an attempt to bring down debt levels is by ensuring that councillors settle their private accounts, but this has proven to be much more difficult,” she said.

Andile Sokomani, a researcher for the portfolio committee, said some committee members proposed a programme like the Masakhane campaign to instil a culture of payment in households through road shows by departmental representatives to communities.

“Nonpayment should be made akin to breaking the law. The department said it was considering a programme along these lines. Some members felt that business, unlike households that can be excused on account of indigence, had no excuse not to pay for municipal services since they made a profit – otherwise they wouldn’t be in business.”

He said the department’s plans to recover commercial debt – which the Treasury quantified at R19.7?billion – were not clear to him, and referred questions on this to Sigidi. Sigidi did not respond by the time of going to press.

Ratings Afrika analyst Leon Claassen said commercial customers did not pay owing to incorrect meter readings and accounts, with municipalities being at fault.

“They should be much more accurate with their billings in dealing with commercial customers,” he said. The [sluggish] economy also affects the smaller businesses’ affordability of municipal services.”

Claassen added many households were finding it difficult to afford municipal services in the current economic climates, meaning municipalities have to look at ways to improve productivity and efficiency.

They also had to curb corruption to keep annual tariff increases below the inflation rate, something rarely seen in the municipal sector.

“At the end, the question is: do households get value for the money they pay to the municipalities? I think the majority would say ‘no’.”

Heese suggested a combined initiative to tackle government debt, with councillors leading the way on household debt.

“The problem is clearly massive,” she said. “Writing off bad debt, as some cities like Tshwane have been working at, is ultimately the only way to tackle backlogs, with billing resolutions and accurate billing and timeous debt collection put in place for current debts [0-60 days].”

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