Cape Town - The National Treasury on Tuesday announced it was withholding the transfer of funds from the fiscus to 60 of the country’s municipalities as a result of their failure to pay creditors, including the cash-strapped electricity utility, Eskom.
“National Treasury has, with effect from 20 March 2015, withheld the transfer of equitable share to 60 municipalities due to failure to honour their financial commitments in general and to pay Eskom and other service delivery creditors in line with section 65 [2] of the Municipal Finance Management Act, 2003…,” Treasury said in a statement.
Treasury, in effect, invoked Section 216 (2) of the Constitution which allows it to stop the payment of grants to municipalities should they be found to be in breach of their financial obligations.
Treasury cited the “persistent failure by some municipalities to pay creditors within 30 days” as a reason it saw it fit to withhold the grants.
“Municipalities, as at 31 December 2014, owed ESKOM R9 billion, of which R4.5 billion is current and the balance relates to arrears, which is a persistent breach of the payment terms applicable to creditors,” Treasury said.
“As at 31 December 2014, municipalities owed Water Boards R3.6 billion, of which R1.3 billion is current and R2.3 billion relates to arrears.”
Treasury said municipalities were informed of the decision to withhold the grants in early March, and were given a March 13 deadline to settle outstanding debt.
“The persistent arrears and failure of municipalities to settle their Eskom payments within 30 days, as is legally required, negatively impacts Eskom’s cash flow thereby compromising the utility’s operations and financial position.”
Treasury said while its decision would affect municipalities’ ability to meet its financial obligations, it could not longer condone financial mismanagement.
“Transfers will therefore only be released once all the requirements as communicated to municipalities are met. This includes a formal repayment arrangement between both parties.”
Municipalities raise revenue in three ways, namely through property rate collections, payment for municipal services and lastly through an equitable share allocation from national government.
African News Agency