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Op-ed: Give to municipalities what belongs to municipalities

The law states it is municipalities that should provide electricity to ratepayers and not Eskom, so why is the state-owned power utility the one in the power seat? asks Alex Mabunda.

When I read that municipal bodies Salga and CIGFARO are threatening to approach the Constitutional Court over Eskom’s deprivation of municipalities’ electricity revenue, I momentarily harboured positive thoughts about the COVID-19 pandemic.

For indeed, it is thanks to the financial pressures municipalities are currently experiencing under the pandemic that this issue has come up so strongly. 

Since 2013, when Ntiyiso Consulting concluded a study on the same issue for the Umhlathuze Local Municipality, we have, to no avail, been advocating for this injustice against municipalities to be addressed.

Our brief for the Umhlathuze study was to evaluate both the financial and legal implications of some of the large power users within the Richards Bay industrial area taking electricity directly from Eskom.

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The basis of the study was that, in terms of the South African system of governance, municipalities receive less than 10% of their funding from the national fiscus.

The rest of their funding is raised from revenue generated from services they provide to ratepayers, as well as property rates. There is therefore a need – the study contemplated – for the municipality to optimise these funding sources.

Revenue for municipalities

From a financial perspective, we found the surplus income from electricity cross-subsidised both non-revenue-generating services such as street lighting and stormwater drainage, and subsidised services such as cemeteries and healthcare services.

All these services, it was noted, are enjoyed by every citizen from within the municipal boundaries, irrespective of where they received their electricity from.

From a legal perspective, the finding was more straightforward than we had anticipated.  

According to Section 152(1)(b) of the Constitution, among the powers vested on local government was “to ensure the provision of services to communities in a sustainable manner”.

In exercising this power, a municipality can impose “rates on property and surcharges on fees for services provided by or on behalf of the municipality” (section 17).

Section 74(2)(a) of the Local Government Municipal Systems Act demands users of municipal services should be treated equitably in the application of tariffs.

Nothing could be further from this legal requirement than the situation at Umhlathuze and elsewhere in the country, including in larger metros, where Eskom continues to reign supreme, providing electricity directly to ratepayers.

It was conclusive from the study that Eskom-supplied ratepayers benefitted unduly from services contributed to only by municipality supplied ratepayers.

Officers of the law have not been oblivious to the constitutional matter conferring powers to provide basic services to municipalities.

In a 2017 case in which AfriForum sought to prevent Eskom from cutting electricity supply to defaulting municipalities, Judge Hans Fabricius ruled against it, noting Eskom had no “constitutional obligation” to provide ratepayers with electricity.

Instead, ratepayers “are entitled to electricity from the municipality”, meaning Eskom is in fact fulfilling the role of supplying electrify to consumers on behalf of the local municipality – which is what our study had found four years prior.

The threats by Salga and CIGFARO to take this matter to the Constitutional Court must not be taken lightly.

If they do, Eskom will be found wanting for playing the role of a wholesaler and then go on to compete with retailers in the same market. But this is a much bigger issue than the politics of competition and clear suboptimal implementation of the law.

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Rather it is an emotive issue of underfunding of local government in South Africa.

It is the issue of grossly understated municipal balance sheets, which prevent them from borrowing to fund infrastructure projects.

Our 2017 Municipal Revenue Benchmark study, which focused on municipal revenue sources, established electricity accounts for revenue at a range of between 40 and 60%, followed by property rates at about 30%.

This was the same finding from the Umhlathuze study.

In one anecdotal finding from another (rural) municipality, it would triple its own-generated revenue if it supplied electricity within its jurisdiction. This is a mile of a difference to a municipality whose own revenue was a mere R30 million.

Yes, municipalities may have their faults on governance, and lack capacity as it is often said, but these technical challenges must never be used to take away their means to fulfil their constitutional role to provide services and enable development.

Neither should Eskom’s self-afflicted financial crisis be used as an excuse to prolong this excruciating injustice against the most vulnerable, and yet the most important, the sphere of government – municipalities. 

There is therefore no need to waste more time asking the Constitutional Court to confirm constitutional provisions that are stated verbatim in the Constitution.

The parties, namely Eskom, municipal bodies, and the departments of local government and finance must simply get together and agree on how they will implement the law. The sooner they do this, the better.

Alex Mabunda is Group CEO at Ntiyiso Consulting whose mission is “to empower institutions that enable Africa’s development”.

Ntiyiso Consultinghttps://ntiyisoconsulting.co.za/
Founded in 2005, Ntiyiso Consulting is a fast growing authentically African and globally wired management consulting firm that seeks to empower institutions that enable Africa’s development. Ntiyiso Consulting helps improve cash positions of large and medium sized municipalities; turnaround or improve the revenue, profitability or social mandate profitability or social mandate performance of large and medium organizations; and unlock economic opportunities on behalf of communities & regions.