File image: IOL

CAPE TOWN - Municipal debt is not just a municipal finance problem but a symptom of poor functionality across all departments and a reflection of senior management’s ability to manage the business, says local government consultant, Paul Smith.

The Cooperative Governance and Traditional Affairs Minister, Des van Rooyen, recently announced that 48 municipalities are owing Eskom billions of rands.

The big question is why municipalities end up in such debts.

Smith says a significant portion of a municipal debt is uncollectable for the following 6 reasons: 

  1. Poor customer data quality
  2. Erroneous billing
  3. Incomplete indigent registers
  4. Indigent debt
  5. Deceased debtors
  6. Account duplication

ALSO READ: Mpumalanga municipality owes Eskom R400m

Smith believes that resolving debt does not only require a short-term credit management and debt management interventions, but strategies designed to address the real underlying business fundamentals that resulted in debt accumulation.

File image: IOL

"Accurate municipal customer, property, service, and billing data is fundamental for successful revenue collection. Municipalities need to start competing in a very competitive debt management environment where creditors compete for diminishing disposable income," he explained.

The National Energy Regulator of South Africa has been conducting public hearing around the country on Eskom’s revenue application for the 2018/19 financial year - Eskom prosed a 19.9% electricity tariff hike believed to be a prospective rescuer of the power utility from its financial difficulties.

ALSO READ: WATCH: Eskom's price hike might elevate electricity theft and non-payment

Commenting on this, Smith said, "Eskom price hikes may improve Eskom’s financial position, current wealthier paying municipalities with bigger tax bases may be able to afford the proposed price hikes. In contrast, defaulting municipalities will be further burdened by the price hikes. The current non-payment by municipalities is not about the cost of bulk electricity but the declining levels of municipal revenue".

Smith concluded that municipalities, provincial and national government should collaborate on improving municipal revenue collection performance and reducing water and electricity losses.