Salga calls for Eskom municipal debt relief
The SA Local Government Association (Salga) is backing calls for the government to alleviate municipal debt to Eskom. Salga wants the government to match the percentage of Eskom debt it takes over with an equal percentage to relieve debt owed to the utility by councils in financial distress.
The SA Local Government Association (Salga) is backing calls for the government to alleviate municipal debt to Eskom.
Salga wants the government to match the percentage of Eskom debt it takes over with an equal percentage to relieve debt owed to the utility by councils in financial distress. Salga’s call in parliament on Friday follows President Cyril Ramaphosa’s suggestion to scrap Soweto’s R5bn debt to Eskom.
Municipalities owe Eskom more than R50bn and residents owe municipalities more than R140bn for services. In July, finance minister Enoch Godongwana reported that more than half the country’s 257 municipalities are bankrupt or insolvent and unable to pay creditors or service worker pensions.
Critics say writing off municipal debt will create a “moral hazard” and deepen the culture of nonpayment. The Treasury has indicated that it will take over a third to two-thirds of Eskom’s debt of about R400bn, with details in Godongwana’s February 2023 budget.
Salga CFO Nceba Mqoqi told members of the two parliamentary appropriation committees in a briefing on the Division of Revenue Amendment Bill that Salga believed it appropriate if the Eskom debt takeover by the government includes alleviation of some municipal debt to Eskom. “There should be a reciprocal approach of alleviating the municipalities particularly those in financial distress. If there is a 10% alleviation of the debt burden similarly that 10% should also be extended to those municipalities. That will improve their solvency,” said Mqoqi.
Debt to Eskom arose from municipalities failing to collect amounts consumers owed for electricity in a depressed economy, he said. “Debt can be written off, but there needs to be conditions ... discussions need to be entered into to [find a] balanced approach,” Ramaphosa said in parliament recently. In 2020, Eskom wrote off about R8bn owed by Soweto residents.
Gauteng premier Panyaza Lesufi has suggested writing off municipal debt to Eskom, saying in a tweet: “Our argument remains. If Eskom debt is taken over by the central government, what our people owe Eskom in townships, informal settlements and hostels must also be scrapped. We need to reposition our townships, informal settlements and hostels so that they can be centres of growth.”
But Cosatu parliamentary coordinator Matthew Parks disagreed with Salga’s suggestion of municipal debt relief. “Eskom has been doing that. Municipalities have had constant debt agreements with Eskom and have continuously failed to honour those agreements,” he said.
“It can’t be correct that half of the country pays their electricity bills and the other half just simply choose to ignore it. Eskom’s debt level from municipalities is continually rising and it is forcing Eskom into a crisis where it now has to go for a 32% tariff hike because municipalities choose to play fast and loose with money that is often paid to it by consumers, by residents which municipalities choose to sit on and not hand over to Eskom.”
Parks said the solution was for the entire country to move to prepaid electricity.
“That is the only way we are going to close this chapter on the debt issue,” he said.
Salga reiterated its view that local government was underfunded relative to services it has to provide. It said the mediumterm budget policy statement did not provide measures “to address the risks or challenges experienced by municipalities in financial distress”.
A portion of the higher-thanexpected revenues should be used to alleviate the financial pressures faced by these municipalities, with stringent conditions attached, said Salga.