Tshwane bid for Eskom debt relief fails
The Treasury announced in January that it had admitted 70 of the 72 municipalities that applied to the programme, collectively they owed R55.2-billion as of March 2023.
Metro cash flow problems will persist for the foreseeable future after The Treasury turned down Tshwane request for tailored Eskom debt relief.
In September last year the metro applied for relief from its more than R2-billion Eskom debt on self-determined conditions instead of those set by The Treasury.
At least 70 municipalities applied for and were admitted to the programme on set conditions.
The Treasury devised the programme to boost the cashflow of ailing municipalities by allowing them to pay off their bulk electricity supply debt to the power utility over three years.
Tshwane has written to The Treasury to appeal the decision and ask for an urgent meeting.
“The rejection of the metro’s debt relief proposal presupposes the city’s liquidity challenges and cash flow position will persist for longer,” said metro spokesperson Lindela Mashigo.
“The rejection will also have a negative bearing on the city’s ability to deliver on its local government mandate. This means businesses and residents will not receive the required service timeously. In other instances, service might be reduced because as the city will have to direct a chunk of its revenue to settle Eskom debt.”
Admission to the programme was conditional on municipalities meeting about 14 conditions, some of which were:
– pay the current account
– devise a credible funding model which must be part of the approved municipal budget
– not accrue an operating deficit
– maintain a minimum average quarterly revenue collection for property rates and service charges
– achieve a 80% revenue collection rate from April 1 2023, 85% from April 1 2024 and 95% from April 1, 2025
– limitation on borrowing powers
– not borrow for three consecutive years
During his budget speech last year, Finance Minister Enoch Godongwana announced the programme and set the deadline for application for admission as September 30, 2023.
At the time, Mashigo said the city would ask The Treasury to ease the conditions.
He said some conditions would adversely impact revenue-generating streams, capital infrastructure development and service delivery, as well as worsen an already strained financial situation and liquidity.
After The Treasury’s decision, Mashigo said the metro would strengthen the Tshwane Ya Tima campaign to improve its working capital.
“The city has devised and implemented several credit control measures or strategies, including Tshwane Ya Tima, that are expected to improve its working capital.”
Mashigo said the metro would do everything in its power to improve its liquidity to enable it to continue to deliver services.
He said the mayoral committee had adopted a 10-point plan to achieve Tshwane’s objectives, including the following:
– implement robust credit control measures
– create reliable waste and refuse removal services
– provide stringent financial management and oversight
– enhance city safety and emergency services
– promote employment and economic growth in the city
– support the vulnerable and provide them social relief
– fast track development by cutting red tape
The debt relief programme had four elements:
– Debt write-off: Eskom would write off municipal debt over three years, subject to such municipality complying with the conditions
– Resolve non-payment: The National Energy regulator of SA (Nersa) to assume responsibility for consequence management for municipalities that fail to honour their electricity supply agreements with Eskom
– Prepaid metering: Municipalities to migrate postpaid customers to prepaid
– Municipal revenue enhancement initiatives: The Treasury to address weaknesses in municipal revenue management
These initiatives would include setting cost-reflective tariffs, developing policies to improve revenue, and finding an across-the-board smart prepaid meter solution to allow municipalities to collect revenue before instead of after the service has been consumed.
The Treasury revealed this year that it had admitted 70 municipalities to the Eskom debt relief programme.
“By December 2023, 72 applications had been submitted, totalling R56.7-billion or 96.9 % of the total municipal debt to Eskom as at the end of March 2023 and 70 totalling R55.2-billion had been approved as of January 2024,” said The Treasury.
The Tshwane application was rejected because it would not commit to all 14 of the debt relief conditions, according to The Treasury.
“In the case of Tshwane, this amounted to approximately R1.06-billion. In terms of MFMA Circular No. 124 (Condition 6.2) the Tshwane’s application had to include the minimum required information, which included as a critical component that the city commits to all 14 of the conditions of debt relief,” said The Treasury.
The Treasury notes that only debt up to end of February 2023 qualified for relief.
said the primary responsibility to resolve any municipal financial problem rests in its council.
“The Tshwane council needs to re-prioritise its budget within the available and realistically anticipated basket of revenue.
This should include cutting all unnecessary expenditure to prioritise payments that facilitate basic services, including paying Eskom,” said The Treasury adding that it was also critical that Tshwane addresses gaps in its revenue value chain.
“This is to facilitate completeness of its revenue base in order to optimise on collection of revenue due to the city, this will require enforcement of credit control parallel to improving the management of free basic services to poorer households and ensuring the cost reflectiveness of its tariffs also in any seasonal tariff application to Nersa.”
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