Relief or ruin for struggling towns?

The SA Local Government Association (Salga) represents the 257 municipalities in South Africa – from the smallest dorp to the biggest metro – so it shouldn’t come as a surprise to anyone that it seems to be digging in its heels in opposition to a plan supported by the national Treasury to have Eskom appointed as an agent to run the electricity function of at least 30 municipalities.

The Distribution Agency Agreement (DAA) proposals are, basically, a last-ditch attempt to save struggling towns and cities from total financial collapse.

Municipalities default on payment

Treasury says that many of the municipalities that signed up to its “debt relief” programme had almost immediately defaulted, including by failing to pay their electricity arrears.

In many cases, whether Salga likes it or not, the money which is gathered from paying electricity consumers is often diverted to other areas of municipal expenditure… and some end up getting looted in the normal South African manner.

Eskom to write off debt after 3 years

Importantly, the debt relief programme provides that, after three years of responsible behaviour, a municipality can have its historical debt written off by Eskom.

Salga points out that a DAA cannot be imposed, despite Treasury’s threats to pull all financial support.

The legal requirements include, Salga argues, that an investigation be carried out into whether a municipality can deliver power supplies itself.

Municipal arrears debt to Eskom

If not, it must put these out to tender – and then Eskom must throw its hat into the ring with any other interested parties.

Municipal arrears debt to Eskom now amounts to R114 billion, which poses an existential threat to the utility.

It also means that those who are paying for their electricity – as opposed to the hundreds of thousands, if not millions, who are not – will be hit with tariff increases exceeding inflation. DAAs are the only sensible option.