For its part, the government needs to be a shining example of prompt payment for services, instead of entrenching the culture of non-payment.
But as the figures show, they are not practicing what they preach.
Turning the spotlight on Eskom, people are quick to throw a stone and blame the municipality for not paying the energy utility.
Since July last year the average bill received from Eskom was R70.3-million.
The municipality could not foot the bill and instead of paying the whole amount each month, only paid on average R51.3-million, which is about a 72% payment rate. That means a short payment of R19.8-million.
Again consumers are just as much to blame because on average the municipality billed consumers R51.3-million a month, in the same breath only 60% of that amount is paid by consumers each month. So the municipality only received R42.1-million, this represents a monthly unrecovered portion of R28.2-million.
The municipality’s financial stability was one of the main concerns when Mr Theo van Vuuren was appointed as administrator.
“In respect of financial stability, the municipality has launched a process of revenue enhancement and cleaning up its creditors and debtor’s books. Progress has been positive, although the process to instil a culture of payment and to re-establish the data base is slow,” he said is his report to the provincial government, days before the intervention period is set to end.
At present the municipality is operating on a negative cash flow of R14-million, whereas in 2011/2012 it was operating on a negative cash flow of R27-million.
In 2012/2013 the municipality’s coffers had R3-million in and it further improved to positive R10-million at the end of June 2014. However, there are continued pressures on cash flow, especially as a result of under recovery on the electricity bill.
“The cleaning up of the creditors also has made progress. In April the identified creditors were R389-million, including Eskom. During the stabilisation process a further R114-million of previously undisclosed creditors were identified. In addition contingent liabilities of R336-million were also discovered. Furthermore, it was discovered that Municipal Infrastructure Grant (MIG) and loan funds were used to pay for operational expenditure, among others Eskom. Partial corrections were made in 2012/13 to pay MIG projects but this resulted in the Eskom debt for May and June not fully paid, resulting in an increase of R100-million in Eskom debt by end of June 2013. During 2013/14 an amount of R70-million of MIG funding previously used for operational expenditure was corrected and the outstanding creditors were reduced with R247-million and at year end, June 2014, total long term creditors (including Eskom and contingent liabilities) were reduced to R580 million,” Van Vuuren explained.
The municipality managed to stabilise its debt to Eskom during 2013 but since the high demands during the winter of 2014 and increased levels of illegal consumption from growing informal areas the municipal ability to meet its monthly payments reduced and Eskom arrears grew to R550-million in January.
A letter of demand on arrears accumulated since October 2014 was received by the municipality on March 6. Unless the municipality improve their payments and start paying the arrears, Eskom will have no option but to consider curtailment measures to minimise further defaults.
To meet the requirements the revenue enhancement process, focusing on outstanding business and government debt, was accelerated and the municipality aims to cover most if not all of this arrears during March. This however remains a critical outstanding issue requiring provincial intervention.
The debtors situation on April 30, 2013 was R949.3-million and this increased to R961.5-million three months later.
On the doorstep of 2015 this further increased to R1.4-billion. This increase was as a result of non-payment plus penalties and additional charges (three years) been levied on customers. A serious problem in reducing debtors due to continuous high levels of illegal usage and connections has been experienced.
To make matters worse, more than R400-million of accounts were irregularly closed during previous financial years.
The initial attempts by external service providers to recover debt did head little results and since January 2014 the municipality embarked on its own debt collection, especially through its Operation Luma.
The strengthening of the revenue stream was a key priority during the intervention period. The first phases of this strategy focused on the installation of water and electricity meters and more than 20 000 water meters have been installed. However, the incomplete customer base, poor data quality, culture of non-compliance and insufficient champions to drive these processes only achieved a limited level of success in the first 16 months.
The situation was asserted by making key changes to the management team, especially in respect of the chief financial officer and by strengthening the intervention team with the deployment of a Deputy Administrator to focus on this element.
Since January a revised action plan to address outstanding debt, focusing on outstanding debt from businesses was introduced.
As a result the payment rate went up from a first six month average to 91% during February and indications are that this approach will make inroads on the outstanding debt with a target to reduce it to 50% by the end of the financial year.
The most recent tax statistics showed that there were 52 484 taxpayers registered in Emalahleni Local Municipality in 2013. The average taxable income in 2013 was R257 507.
Stats SA describe this municipality in the middle of a coal-mining and power-generating area, as an ‘energy mecca’.
Its annual average household income in the 2011 census was R57 300, about double the national average. Of its population of around 400 000, about 14% are registered as taxpayers and are clearly relatively well paid. Its economy was the eighth-fastest growing in the country, at 3.6%, between 2001 and 2011.
Nearly 1% of the households earn more than R1-million a year and 359 of them are in the top income bracket of R2.5-million or more. Most of them live in eMalahleni itself.
Its unemployment rate is about 27% and, at nearly 20%, the proportion of households that are shacks is nearly 1.5 times higher than the national average.
It seems that slowly but surely Emalahleni is recovering from its huge debt. It is going to take time and effort and if the community, businesses and also government settle their debt with the municipality, this effort will soon bear fruit and the coffers will again fill up.
