Game changer to prevent power cuts for defaulting municipalities

2017-02-22 14:23 - Matthew le Cordeur
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Cape Town – Finance Minister Pravin Gordhan on Wednesday announced four “game changers” in National Treasury’s focus on municipalities, one of which will help end the spate of power cuts inflicted on defaulting areas.

Gordhan, delivering his Budget Speech in Parliament, said “government continues to invest in improving the financial capability of municipalities”.

“In the period ahead, National Treasury and provincial treasuries have agreed to focus their efforts on four ‘game changers’.

One of these is the “enhanced revenue management, including appropriate tariff-setting, regular billing and effective collection systems”.

Gordhan’s message of action was complemented with his department’s Budget Review that he tabled in Parliament, which says municipalities need to plan and manage risk better to avoid defaulting on payments to providers.

“Where revenue collection is not well planned or managed, or where tariffs are not properly set, serious financial problems can arise,” National Treasury said.

“Eskom’s recent move to cut off power supply to municipalities that have not paid electricity bills is an indication of what can happen when municipalities fail to manage this risk.”

Since 1 November 2016, when Eskom gave power interruption notices to defaulting municipalities, the power utility collected over R1.3bn. The number of defaulting municipalities has also decreased to eight from 40, it said in February.

“Revenue management is vital for municipal finances,” Treasury said. “In a growing number of municipalities, payments due to creditors exceed the revenue collected.

“Municipalities need to set tariffs at the right level to recover their costs, and ensure the correct amounts are billed and collected.

“The National Treasury is leading a working group to design a national revenue management framework for municipalities and working with Eskom, the National Energy Regulator of South Africa, the South African National Energy Development Institute and the Department of Energy to develop guidelines on electricity tariff setting and demand management.”

Gordhan’s other three game changers included:

- The new Municipal Standard Chart of Accounts, which will be implemented from 1 July 2017, contributing to greater transparency and consistency of municipal finances.

- Targeted supply chain management interventions to achieve cost savings and combat fraud.

- Improved asset management, including adherence to 8% of the value of assets being spent on their maintenance.

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