Treasury terminating debt relief for failing municipalities in South Africa
The National Treasury says it is terminating the debt-relief programmes for municipalities that have consistently failed to meet their obligations—and the next move is for them to deal with Eskom.
This is according to Finance Minister Enoch Godongwana, who responded to a Parliamentary Q&A on the failure of 61 municipalities in the country to clear their electricity debts.
The debt relief programme ring-fenced historic electricity debt and suppressed related interest, creating space for municipalities to meet ongoing obligations.
However, it is apparent that the programme failed.
The minister noted that 61 municipalities—the vast majority of the 71 that initially participated in the programme—have consistently failed to meet several obligations.
These failures include:
- A failure in tariff management, specifically the inability to approve cost-reflective tariffs.
- An issue with revenue base accuracy; incomplete rate bases have not been fixed, resulting in a failure to bill all consumers for rates and services.
- Credit control and collection are lacking; credit controls have not been enforced, or outstanding revenue has not been collected, such as by failing to use electricity and water disconnections as effective collection tools.
- Resource losses also pose a significant challenge, with failures to address both technical and non-technical losses of water and electricity.
- Policy abuse due to the failure to enforce the national free basic services policy limits.
“These failures are directly under the control and influence of the respective municipal councils,” he said.
The Treasury stated that increasing fiscal allocations to these municipalities is likely to weaken their political will to address these issues, ultimately harming future collection efforts.
Given the Debt Relief Programme’s aim to achieve specific financial outcomes, the state is transitioning from a policy of conditional debt relief to a more structured, rigid intervention.
As a result, the National Treasury is now terminating all persistent defaulters from the programme.
It added that the termination will allow the affected councils to proceed with a municipal relief debt write-off through a Distribution Agency Agreement (DAA) with Eskom.
This agreement can only be completed by following the rules set out in the Municipal Systems Act and the Electricity Regulation Act.
The DAA aims to reduce Eskom’s risk of non-payment by municipalities while ensuring that basic services continue for communities.
Under the DAA, municipalities would retain their electricity licenses, enabling them to restore stable service after five years.
However, they will, in turn, give up some control over their services to Eskom, especially regarding billing and collection.
Godongwana said that Eskom’s conditions will be tightened to ensure it collects payments from all municipalities as needed.
According to Business Leadership South Africa (BLSA) CEO Busisiwe Mavuso, it is critical for South Africa that the municipal debt crisis is resolved.
While Eskom and the country are celebrating a full year without load shedding, it is apparent that the new crisis for the power utility has shifted beyond scheduled outages.
She stressed that municipal debt owed to Eskom is now exceeding R130 billion, with the City of Joburg’s R5.2 billion debt making headlines this past week, making matters worse.
Eskom itself has flagged the debt as a massive issue, warning that it could reach R300 billion if left unchecked, unravelling the group’s turnaround.
If the crisis is not resolved, the power utility could wind up back at National Treasury’s door, asking for a bailout—footing taxpayers with the bill.
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