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Minister Kgosientsho Ramokgopa’s proposal to raise the free electricity allowance cannot fix a broken distribution system where non-compliant municipalities routinely divert relief funds to pay staff instead of delivering power to indigent families.
Over the past two months, intense debate surrounded the Local Government Equitable Share after Finance Minister Enoch Godongwana withheld R13.5-billion in funding from 69 delinquent municipalities in early July.
The funds – which targeted cities including Johannesburg, Nelson Mandela Bay, Buffalo City and Mangaung – were subject to proof of proper financial compliance. However, despite only 20 municipalities (and just one metro, Buffalo City) meeting these standards, the Treasury reinstated the full tranche on July 31.
The immediate problem is this:* *Between them, the 69 municipalities owed R27-billion to Eskom, the water boards and their employees’ pension funds. The reason they are unable to pay is that they, in turn, are owed R219-billion by households, businesses and government departments that have not paid their own municipal bills. Of this sum, R12-billion – just over 5% – is owed by government departments and parastatals.
The underlying problem is partly related to mismanagement by municipalities. But it is also related to mismanagement at Eskom, which has resulted in electricity becoming prohibitively expensive for households and industry. Over the past 20 years, the price of electricity has increased sixfold in real (inflation-adjusted) terms.
Electricity and Energy Minister Kgosientsho Ramokgopa acknowledges the issue, yet puzzlingly opposes unbundling Eskom to create an independent transmission entity. Creating this separate entity remains the most viable long-term solution to expand access to cheaper renewable energy.
What can be done in the meantime to minimise the impact of this cost, particularly on the poor? Ramokgopa said last week that the government’s new policy, due for release last Friday, will raise the amount of free basic electricity (currently 50 kilowatt-hours per month) to between 200 and 300kWh.
While this would be welcome, it would not solve the main problem: 11.2 million (56%) of South African households qualify for free basic services (including electricity), but only one-quarter receive them.
Every household with a combined income of less than R4,800 per month (equal to two state old-age grants) is entitled to receive monthly free water (six kilolitres), energy (50kWh), sanitation and refuse removal (based on service levels defined by national policy). The central government allocates funds to municipalities to pay for this, plus 10% for the maintenance of infrastructure that provides these services.
To this end, the state allocates R648 per month on behalf of each indigent household through the municipality in which it is located. This basic services component comprises 79% of the LGES – the balance is made up of an institutional component for each council, partly based on its size; plus a community services component which is biased towards municipalities that struggle to raise income from their other two main sources of revenue: rates; and sales of electricity and water.
Electricity and water tariff increases are justified on the grounds of financing the infrastructure that provides for their distribution, but are frequently used to cross-subsidise other municipal expenses. As electricity has become more expensive, mark-ups and consumption have declined, resulting in reduced revenue for municipalities.
Allocations of free basic services are determined by the number of indigent households within each municipality as enumerated in the national census. The problem is that these funds are not ring-fenced for this purpose, and municipalities that fail to provide evidence that the free services are indeed provided are not penalised.
In fact, the current regulations place the onus on municipalities to verify the indigent status of households. Most require registration, which must then be renewed annually. Bizarrely, municipalities are not even bound to use the R4,800 threshold as a lower limit for qualification, and some apply lower thresholds.
Many municipalities have over-cumbersome registration processes. The reality is that the lack of control over the spending of the basic services component is very convenient for municipalities, many of which use these funds to pay employees instead, resulting, in some cases, in bloated staff complements and overpaid municipal officials.
The Treasury is reformulating the guidelines for distribution of the equitable share to ensure that the portion allocated for direct payment of services to indigent households is ring-fenced so that it reaches those households.
The new regulations that ring-fence these funds for their intended purpose need to be implemented as a matter of urgency. Once this is done, the Treasury should be able to withhold payment of the portion of the basic services component to municipalities which is not passed on to households without fear of compromising the provision of such services.
The ministers of finance and of cooperative governance and traditional affairs have initiated a further obvious step – to get government departments to set an example by paying their own municipal debt. The minister of finance should be even tougher on government departments than he has been on municipalities, and refuse to approve their budgets next February if their municipal debts remain unpaid.
At least 79% of households nationally now rely on prepaid electricity. Another step the government could usefully take is to subsidise the installation of meters in the remaining 21% of households. Even so, meters can be tampered with to avoid payment, but it is of little use writing off municipal debt without meter installation. DM
