MTBPS: Godongwana tries to tackle municipal debt, electricity and Transnet

Municipal debt, electricity, logistics and infrastructure, all factors that affect economic growth, were also mentioned in the medium-term budget policy speech (MTBPS), with the minister of finance, Enoch Godongwana, discussing measures to tackle these issues.

He said the problems around Eskom cannot be tackled without considering the difficult financial conditions in municipalities that include non-payment and uptake of the debt relief programme outlined in the 2023 Budget.

Municipalities can apply to have their debt to Eskom up to 31 March 2023 written off over a three-year period, provided the municipality complies with set conditions that include enforcing strict credit controls, enhanced revenue collection and up-to-date payment of Eskom’s monthly current account.

By October 2023, 67 municipalities applied, totalling R56.8 billion or 97% of total municipal debt owed to Eskom at the end of March 2023. So far, 28 applications have been approved, while the rest are being assessed and verified with provincial treasuries.

Godongwana said the ultimate goal is to transform these municipalities by empowering them to build financial resilience, amplify their capacity to generate sustainable revenue and rekindle a culture of paying for services rendered.

ALSO READ: Eskom records R23.9bn loss due to poor plant performance, IPP delays

Electricity supply and Eskom

Turning to electricity supply, he pointed out that the country experienced more power cuts in the year to September 2023 than in the whole of 2022. He also pointed out that renewable energy investments combined with the return of Eskom’s units that are out of service, should curtail power cuts.

The review of Eskom’s coal-fired power stations commissioned by the National Treasury is complete and effective implementation of the recommendations will help to transform the electricity sector. Government will shortly share the findings of the report.

With South Africa’s traditional trading partners intensifying their decarbonisation plans, Godongwana said the transition to new energy vehicles (NEVs) poses an existential threat to South African vehicle production.

Therefore, government plans to implement tax and expenditure measures to support the automotive sector during this transition. Details will be provided in the 2024 Budget Review.

ALSO READ: Rail reform ‘more urgent than ever’ after Transnet CEO resigns

Challenges in logistics sector

Many experts were expecting Godongwana to address the problems with logistics in the country as this is an important impediment to economic growth. He said rail underperformance is estimated to have cost up to 5% of GDP in 2022, with losses in the region of R50 billion in the minerals sector alone.

“Given the scale of the challenges, the National Logistics Crisis Committee was instituted to broaden reforms in the sector and prioritise reforms aimed at resolving the immediate crisis, while also addressing the structural aspects hampering the sector.”

He said this approach is consistent with the key lesson from reforming the electricity sector, that resolving challenges must be based on transforming the sector and not trying to save an entity.

“We acknowledge Transnet’s central role in moving goods and commodities to local and international markets and the implications for business, people’s lives, the economy and our global competitiveness when Transnet is dysfunctional.”

Transnet’s performance has been underwhelming and its operations have been strained by a worsening financial state and recognising the seriousness of the situation, Treasury is working with Transnet and the department of public enterprises to ensure that Transnet can meet its immediate debt obligations.

Broader reforms of the logistics sector will be guided by the Freight Logistics Roadmap that sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector.

Godongwana said only once these three objectives are reflected in Transnet’s corporate and operational plans, will there be a conversation about whether and how government can provide financial support to transform the logistics sector.

ALSO READ: MTBPS: Cutting government spending, keeping the SRD grant

Investment in infrastructure will become easier

The minister also emphasised that investment in infrastructure is central to supporting higher economic growth and expansion of access to basic services. He said some of the challenges are the lack of a credible pipeline for funding, a lack of sustainable financing arrangements to crowd-in private finances and poor contract and project management to manage cost and schedule overruns.

“In this regard, we are amending Treasury Regulations and key elements of municipal legislation in line with the recommendations of the completed review of the Public-Private Partnerships (PPP) framework. The new regulations will be published by the time of the Budget 2024.”

Government is also establishing an Infrastructure Finance and Implementation Support Agency that will systematically address the need to crowd-in private sector finance and expertise into the public infrastructure programme and widen the scope for concessional borrowing by creating new mechanisms for co-investing.

This will include the use of build-operate-transfer (BOT) structures, PPPs and concessions and application of the frontloading mechanism allowed by provincial conditional grants. The 2024 Budget will provide further details on these measures.