Eskom woes part of larger Financial Management challenges at Local Governments.

29 March 2022

“South African Municipal debt to Eskom is truly shocking. It is a subject often reported about in the media, but it is still worthwhile to reflect on the magnitude. According to data compiled by the Western Cape Department of Local Government, municipalities in South Africa are 90 days behind on Eskom payments to the tune of R41billion. This is an astonishing large amount of money and one can understand the severity of Eskom’s financial crisis when this is added to their problems.

Table 1: debt older than 90 days owed to Eskom

Source: Eskom Section 41 Report

According to the latest monthly report issued by Eskom, the total debt owed by Western Cape municipalities amounted to 3% of the total municipal debt owed to Eskom. It should be noted that there are currently only four municipalities in the Western Cape that have high outstanding debt older than 90 days. The total debt over 90 days for these municipalities amounts to R134,7 million for the period ending January 2022.

The municipalities are Beaufort West, at R68million, Matzikama at R82million, Cederberg at R37million and Kannaland at 35million, as described in Table2 below:

Table 2

Source: Eskom

Non-payment to Eskom is a symptom of a larger underlying problem facing local governments throughout the country: A culture of weak or no financial management.

As such, my Department of Local Government is working on several initiatives to address this, and to provide the support needed to improve where necessary. The crux of this matter is that financial management and financial discipline requires responsible managers to see potential problems early, and to act decisively before it spirals out of control, as has happened with Eskom.

In the Western Cape, we have found some early warning indicators to identify potential signs of lacking financial management.

One clear red light is when the price of basic municipal services to start to spiral out of control and cannot be justified in terms of value for money or economic realities of the specific community. If left unattended, one of the results will be that rate paying residents are taxed out of their homes, with very negative long term economic consequences to the local governments financial health.

We are addressing this challenge through a Departmental project where municipalities are assisted to revisit their tariff structures for more conformity throughout the Province, and to make sure it is based on sound economic data.

Another good marker to measure a municipality’s financial competence against, is its  ability to effectively collect rates for services rendered. This aspect is crucial for long term financial sustainability. We are providing guidance, support, and turnaround advice to local governments if they need to improve in this regard. Of course, it is simply criminal for a local government to have a high collection rate on electricity, but then negates to pay Eskom.

We also find that financially struggling municipalities often have weak personnel management strategies in place as well. This often leads to a top-heavy staff component with an unsustainable staff cost in relation to the municipality’s income. We provide advise and expert support to municipalities in this regard as well.

Back to the Eskom situation: The Western Cape Department of Local Government in collaboration with the Provincial Treasury have instituted preventative measures in an aim to reduce debt owed to Eskom by municipalities.

These measures include the regular monitoring of debt amounts owed by municipalities as well as ensuring the effective implementation of and adherence to signed Payment Arrangements between municipalities and Eskom to ensure that these arrangements are honoured.

Inter-governmental Relation meetings between the Department, Provincial Treasury, Eskom and municipalities are conducted regularly to discuss payment arrangement plans and to monitor progress. Progress on these matters is then reported to me monthly.

An example of this process is a recent intergovernmental relations meeting that focussed on payment defaults where one municipal account was in default since October 2021 and another account since December 2021. The main aim of these engagements is to establish affordable and realistic payment arrangements. There is currently an Inter-Governmental Relations Framework Act (IRFA) process in progress where an amended payment arrangement will be compiled for one of the municipalities.”

Issued by Anton Bredell, Western Cape Minister of Local Government, Environmental Affairs and Development Planning, 29 March 2022