Defaulting municipalities owing Eskom: Inter-Ministerial Task Team; with Minister

Public Accounts (SCOPA)

13 November 2018
Chairperson: Mr TN Godi (APC)
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Meeting Summary

The Minister of Cooperative Governance and Traditional Affairs, together with the Inter-Ministerial Task Team (IMTT) advisory panel on electricity reticulation and distribution, briefed the Committee on the progress being made in addressing the challenges involved in resolving municipalities’ debt to Eskom, which now amounted to R17 billion. The debt was not just a problem for Eskom, but was a national issue because it had a huge implications for the economy of the country.

The Minister said a disagreement existed between Eskom and the South African Local Government Association (SALGA) over the constitutional mandate for the reticulation of electricity. The Presidential Coordinating Council (PCC) had met and felt that the matter needed to be dealt with in terms of the inter-governmental relations frame-work. Therefore, an inter-ministerial task team had been put together with CoGTA chairing, and had included the Departments of Public Enterprises, Finance, Energy, and Water and Sanitation, as well as the President of SALGA and Eskom. A team at that level had been duplicated in the form of a technical team that did a lot of work in between the sessions. The inter-ministerial team had then appointed an advisory team.

While the Committee was impressed to see some progress had been made, Members were dissatisfied that the report, with recommendations from the advisory panel to the Minister, was still subject to a refinement process. Discussion on the report was therefore going to be meaningless until the political decision had been taken.

Members emphasised the need for urgency to finalise the process. Parliament would soon be closing for a recess, and the Committee needed to have solutions so it could explain to the public what was happening at the municipalities. They expressed concerns over the overall lack of management at municipalities, the high level of corruption and wasteful expenditure, and the fact that over 100 municipalities’ finances were in such a state that they might not be able to continue operating. They said consumers had to be protected from high tariffs and limitations on electricity and water supply, and called for strict consequence management to be implemented at the local government level.

Meeting report

Opening remarks

The Chairperson welcomed Dr Zweli Mkhize, Minister of Cooperative Governance Traditional Affairs (CoGTA). The Committee had been patiently waiting for the meeting since their last meeting in June. The hope was that the meeting would lead to knowing and understanding that there was a firm grip on the issues. The whole country had been looking on with interest because the matters that were going to be discussed were about Eskom, and were issues that affected the economy and its challenges, including the impact of the Independent Power Producer (IPP) policy and its impact on the Eskom balance sheet. Adding that to the challenges facing municipalities did not create a good picture. He hoped the engagement would assist in finding the solution the Committee had been pursuing since last year with Eskom, the South African Local Government Association (SALGA), the Department of Cooperative Development and Traditional Affairs (CoGTA), the municipalities and the Ministry. Though the Minister had come to the meeting alone, it was supposed to be an inter-ministerial team that would provide feedback on the work that had been done.

Inter-Ministerial Task Team report
 
Dr Mkhize said that the report being tabled was not a CoGTA report, but that of the inter-ministerial task team (IMTT) and the rest of the team on the technical side. The team had had the opportunity to address SCOPA in June, and had hoped it could come and give a report when everything had been finalised. However, the team had not yet finalized, but was getting close to it. It was important for the team to honour its obligation as requested by the Committee to come and give a progress report -- and the progress was pleasing.

He explained there had been disagreement between Eskom and the South African Local Government Association (SALGA). Their view was that the matter needed to be taken to court for a declaratory order to decide on the right mandate for the two organisations – the municipalities and Eskom -- for the reticulation of electricity. The President’s Coordinating Council (PCC) had met and felt that the matter needed to be dealt with in terms of the inter-governmental relations framework. Therefore, an inter-ministerial task team had been put together with CoGTA chairing, and had included the Departments of Public Enterprises, Finance, Energy, and Water and Sanitation, as well as the President of SALGA and Eskom. A team at that level had been duplicated in the form of a technical team that did a lot of work in between the sessions. The inter-ministerial team had then appointed an advisory team led by Professor Daniel Plaatjies (Chairperson of the Financial and Fiscal Commission).

Linked to that was the rise in the debt to Eskom by the municipalities. The debt stood at R14.3 billion around May and had currently gone up to about R17 billion, with similar increases for water services. Eskom’s debt was not just a problem for Eskom, but it was a national issue because it had huge implications for the country’s economy. Therefore the government had to ensure that there was a lot of support given to Eskom to overcome this problem.

The focus of the panel had been extended. They had to look at restructuring the debt owed by municipalities, re-look at the issue of Eskom’s billing system and the model of revenue collection and efficiency. They had to consider the building of a culture of payment, and review the licensing criteria of the National Energy Regulator of South Africa (NERSA). That had been the approach of the panel.

The panel had mostly finished its work on the electricity side, but there was more work that needed to be done on the water services boards’ side. The report had been tabled to the governance and administration cluster in Cabinet at a joint meeting with the economic cluster at the end of August. This had been followed by a report back by the Cabinet joint committee on 14 September, which had asked the team to go back and finalise some of the areas, because not all of the ministers had been present at that point. That work had also been done.

Another issue had arisen in relation to litigation against the municipalities, particularly the one involving Maluti-A-Phofung, which had also drawn in the CoGTA minister and the President. The court judgment of last week had been noted. They had taken an approach that did not involve fighting with the stakeholders, businesses and other community members that had raised concerns. There was the need to work together on this, which was why the team had reached an out of court settlement. The settlement stated that the team wanted to embrace the concerns of the businesses and the other community members. The team was working on a joint programme of monitoring the turnaround of this municipality. This was a huge advance in trying to deal with the issue, where the problem was approached by everyone from the same side.

The report from the panel had tabled several recommendations in relation to the mandate for the reticulation of electricity between Eskom and municipalities, the management of the debt, the billing system as well as the collection system. At the last IMTT meeting, all of these had been discussed, and while there were areas of agreement, there were also a few areas where the team had go through further detailed discussions. Several teams had been assigned to deal with this.

It had been suggested that there was a need to change the approach in terms of collection, and that the efficacy of prepaid meters should be considered, but that recommendation had not been accepted. The team had also looked at different options for collection, and the possibility of independent revenue collection. It had gone into more detail in some of the areas where there had been the need to talk about the culture of payment. Work was also being done to ensure that the defaulting municipalities were managed. In all these areas, there was broad general understanding amongst the members of the team.

Work still needed to be done on the issue of the mandate, where disagreements may still exists, as well as the issue of the management or restructuring of the debt. The team had developed clear approaches to the solution. The question was how to refine all of that when it went to the Cabinet committees and hopefully close some of these matters. The team’s view was that the matter must be dealt with by negotiating among all the parties involved, and that there should be no need for the use of the courts to resolve these matters. There were still a few areas that needed to be tightened up, but there had been significant progress. There was a lot of willingness on the part of all the parties to take the team through to the conclusion. It would not be a comfortable conclusion for everyone, but there was need for a solution that would allow the country to move on and stop having to worry about interruptions to electricity supplies, and concerns about rising debt defaults.


Advisory Panel on Electricity Reticulation and Distribution: Presentation

The Committee was briefed by the advisory panel on electricity reticulation and distribution, which was comprised of Minister Mkhize, Prof Plaatjies, Chairperson of the IMTT Advisory Panel, Ms Khomotso Letsatsi and Mr Sicelo Xulu. The briefing dealt with the constitutional authority and related matters in electricity reticulation and distribution.

There were different interpretations and perceptions of the constitutional and legislative mandate that governs electricity generation, distribution and reticulation that had resulted in countrywide legal disputes between the municipalities and Eskom.

According to Eskom, “executive authority” was not defined in the Constitution, therefore it did not grant an exclusive authority to municipalities The Electricity Regulation Act (ERA) No 4 of 2006 allows NERSA to issue licences for the distribution of electricity or the trading of electricity. Eskom provides this service as a public company, regulated by company legislation, on the strength of a licence issued to it by NERSA. The licence issued by NERSA was without reference to the Local Government Municipal Systems Act (MSA).

On the other hand, according to SALGA, “executive authority” was an exclusive authority. Eskom distributed and reticulated electricity on behalf of a municipality in its licensed allocated areas. Eskom was an external service provider of a municipality as envisaged in Section 76 (b) of the MSA. Furthermore, Eskom was obliged to sign a service delivery agreement (SDA) with municipalities on electricity generation and reticulation, as stipulated in the MSA.
Dr Mkhize said that the report was a raw report. The IMTT and the Cabinet were going to be dealing with it, and a lot of issues in the report were subject to a refinement process. Some of the details may be debated and agreed on. There was no intention to enter into a public debate about them. They were issues that were being processed internally.

The first issue that would be focused strongly on was the approach to collection -- the alternative of prepaid versus conventional -- and there was a process in place to deal with that. The IMTT technical team was going to refine that. By the time the matter was closed, it would have dealt with all those issues.

The second issue was that of an independent revenue collection system. There were a lot of conditions that had been included in terms of what needed to be done to refine the matter before it was concluded as a recommendation.
 
The third issue was around the issue of introducing a payment campaign -- a civic duty – which also needed a lot of refinement.

The final issue had to do with the management of debt default. This looked at the inter-governmental relations process that would ensure that there was support given to municipalities so that the need for taking matters to court did not ultimately arise. Most of the municipalities that were having a problem were not just having a problem of Eskom. They were having challenges of governance, service delivery and a lot of other issues that CoGTA was dealing with, and this was part of the overall approach in dealing with this problem.

Regarding the restructuring the debt, Eskom was debating some of the matters that had been raised in the report. That matter was also in the hands of the IMTT, particularly with Treasury facilitating that discussion. All of that was going to be tightened up.

Six areas where solutions were needed had been tabled in the report that would be going to cCabinet. The team was the middle of the process, and no decision had been made yet. It was going to be tricky to get SCOPA to comment on the report, because it did not have conclusions. Cabinet had to pronounce and before it pronounces, the report was just an indication of the journey that the team had embarked upon. It was not a reflection of concluded solutions to the issues.

Chairperson’s comments

The Chairperson said that as the report was from the advisory panel to the Minister, this meant that the discussion would be on the recommendations of the panel to the Minister, because he made the decisions on them politically. The dilemma was that the matter was extremely important, so there was a need to confront it head on because it had implications for the country going forward.

He said the Minister should have taken the report and come to the Committee with a summary showing the issues that had been dealt with by the advisory panel -- those that had been raised and which were now being considered. This would have avoided debate on the report. Whatever the Committee was going to say about the recommendations was not going to be meaningful until a political decision had been taken. On some of the matters that impacted on Eskom, the Committee might have some views on what had been presented. The report had raw information, but it did indicate the progress that had been made since June.

The Chairperson said that the situation was almost as if the political leadership was taking its cue from the technical people. The ministers should have identified the problems of governance and economics that were impacting on Eskom and decided on what should be done, and then got the officials to decide how to make it happen. Otherwise, there seemed to be a long, drawn-out technical process that was not politically guided in terms of where the team wanted to go and when it wanted answers to all the questions.

The Minister had said that there was need to understand the dilemma that the demands of the processes had put on the team. The team had been asked to give a date when it was likely to give a report, and had suggested that it could do that by September. However, it had not been ready by September. The Committee had been asking them to come and report. There was no way the team could refuse to give a report if it was asked to come and give one. That was the first issue that complicated the matter.

Secondly, the issue of Eskom’s debt had been running from around 2015. It was being dealt with through the Cabinet process and it would not move very far until a different decision was taken.

Minister’s response

Dr Mkhize said that when he assumed office, he had been told that there was an Inter-Ministerial Task Team that had been instructed to come up with a solution. He had then been asked to come and report. He had come to SCOPA and reported and before the whole discussion had been completed, he had been asked what his approach to the solution was. He had raised the issues specifically regarding what the team needed to be the pillars of the solutions. There was the need to sort the issue of the mandate between the constitutional requirements and the electricity reticulation legislation. The team needed an interpretation of the law that would guide the team as to how it should approach the municipalities and Eskom.

The reason the team had not finalised the matter was because it had been trying to reconcile the two views which were involving Eskom and SALGA going to court. The team had made a clear decision that there was no way this matter was going to be resolved in the courts. There were going to political choices that were going to be made. It was not a question of the team being driven by the administration. The team had asked them to analyse the issues from the point of view of where the real problems were. There was a proposal on the table and the team would not necessarily accept the proposal as a solution, but would get a sense of what sort of solution was needed.

Dr Mkhize said that the second issue was the problem of the collection. There were variations between the two types of collection. In one area, conventional methods collected from 38% to 48%, while the other resulted in 99% collection. There must be a move on the issue of collection. This was not driven by the technical team. The team wanted them to go into the details of what needed to be done one moved into refining that issue.

Regarding the restructuring of the debt, the details were not something that the team could decide on at a political level.

He said the matter had already been tabled at the inter-governmental committee. The problem was that there was another session that would take place on 27 November. All of these issues had to be processed and digested at that level. The problem was what to present to SCOPA. If the team had been allowed to say that it was not ready, this Committee could have made that call, but the team also did not want a situation where it appeared that SCOPA was calling on ministers to come and account, and the ministers were refusing to do so. On that basis, the team had brought the issues to SCOPA, although it was going to be difficult to discuss the matter.

Discussion

Mr D Ross (DA) said that a lot of work had been done and there had been progress. Given that it was an interim report, he was looking forward to the finalised political decisions. He agreed that on the basis of increasing debt to Eskom, time was of the essence. The debt had now reached about R17 billion, and 80% of that debt came from the 20 defaulting municipalities. The actions taken to deal with defaulting municipalities had been very weak.

South Africa’s picture for local government looked extremely bleak, according to the audit outcomes. Only 13% had managed to produce quality financials, and 47 of the municipalities had not investigated any of the Auditor General’s (AG’s) findings. There was growing concern for the municipalities, as 31% of them had indicated they may not be able to continue operating. Urgent intervention was required.

SCOPA would welcome some of the proposals in the summary of recommendations, specifically those directed at debt restructuring. However, limiting electricity and water supplies would put communities into a terrible situation, affecting not only the residents but also the economy of South Africa. There was the need to come up with stronger interventions.

Mr Ross asked the Committee, in respect of the correlation between Eskom debt and audit outcomes, whether it had studied the constitutional requirements when there was a persistent breach in the expenditure at these municipalities. The audit findings had been that in many municipalities, the personnel were simply looting the municipality, especially with regard to procurement issues. He suggested the application of more specific interventions, such as the 216 intervention and also the 139 intervention, which obligated the provincial government to intervene in the form of a recovery plan.

He asked how Treasury was involved, saying it was astonishing that the presentation had not included any recommendations from it. Municipalities were unable to collect debt from the municipal consumers. It was difficult to balance the books at some of the municipalities. About R5.6 billion had not been collected. That was a huge impairment in terms of the budget required, and the budget should be fully funded. The impairment was about 50%. The municipalities were basically sitting on their hands. They were waiting for national government to come and rescue them in terms of the equitable share. They did not collect and there was no political drive to collect. There was need for an intervention when there was this lack of accountability. There had to be intervention to clear the inefficiencies and also the corruption and looting of the municipalities through a 216 intervention, which was only for 80 days, and then one could see what was happening. The task team should be asked to look into those interventions.

Mr Ross said that there had been fruitless and wasteful expenditure of R1.5 billion rand, and irregular expenditure in the last year had jumped from R16 billion to R28 billion rand, where there had been no compliance with legislation in the municipalities’ administration. This level of irregular expenditure required serious intervention.

No reference had been made to any inflation-related pricing methodology. There was need to urge NERSA to implement that principle on a regular basis.

The presentation had referred to the upcoming Independent System and Market Operator (ISMO) bill. The functions of the bill had to be investigated. In which country were they using the provisions of the ISMO bill for the adjudication of pricing energy? Was it mainly the transmission area where it was applicable, or was it also in terms of generation? The dysfunctionality in the power distribution also had to be addressed.

Mr M Booi (ANC) agreed that work had been done. The environment was different, because when the process had started, there had been no urgency from the Cabinet to assist the Committee in getting to the current level. Parliament should therefore be glad that there was now an initiative.

The ministry had done what was of importance to the Committee, and it should accept each type of development that had taken place. The Minister had stated that he had to go back to Cabinet and his ministerial colleagues to finalise the report. It was a work in progress.

He told the Minister that the Committee was under Parliamentary pressure. Parliament was going to close soon, so it wanted solutions before it went into recess, and would know exactly what to tell the public about what was happening to municipalities.

Mr T Brauteseth (DA) said that the report had been useful, but the Committee had not heard what Eskom thought of it. He asked who was responsible for allowing the Mafube local municipality’s debt of R60 million to be prescribed. Who had allowed that to happen?

The Minister said he was not sure if Eskom was structured in a way that they should be engaging on the report. The leaders of Eskom must not take responsibility for any of the questions. He had not anticipated the report that Eskom had tabled at the meeting. The issue broadly was to talk about where the entire process was, irrespective of all the disagreements inside the process.

The Chairperson agreed with the Minister. The agreement with the chairperson of the Eskom board had been that Eskom was present as an observer. What the Committee wanted was the report from the IMTT. The Committee had not anticipated any report from Eskom. He told Mr Brauteseth that his line of questioning did not touch on matters related to the report.

Mr Brauteseth insisted that he wanted to speak to the report that Eskom had brought to the meeting, because it would be a waste of taxpayers money if they had come to the meeting but had not engaged. They should be engaged on what their inputs to the advisory panel report had been, because there were areas of disagreement. If there were points of disagreement, the public deserved to know how they were going to be resolved.

The Chairperson responded that the report from the advisory panel was going to be subject to a political process and a political decision. It would therefore be out of order for Eskom to present a report that punched holes into the advisory panel report which had still to be decided upon by the political leadership.

Mr M Hlengwa (IFP) asked who had sanctioned the report from Eskom. The fact that the Committee had the report meant something. It might not be interrogated, but Eskom should clarify on the status of the report.

The Chairperson said that there had been a similar case when someone from National Treasury had distributed some information without the Committee's knowledge and without it being sanctioned, and it had impacted on the process. It had then been agreed that it was not part of the formal presentation at the meeting, although it might have included some information relevant to the process. He appealed to the Members to disregard the Eskom report in the same spirit as the Committee had done with Treasury.

Mr Brauteseth said that he was speaking on behalf of the South African taxpayer and the South African electricity consumer. The South African taxpayer would like to know from Eskom in due course as to who had been responsible for writing off the R60 million at Mafube municipality. The South African public would also like to know what was going to happen to the paying consumers in every other municipality, who were taking their hard-earned funds and doing the right thing by paying their taxes, while the municipal authorities were stealing that money or using it for purposes other than paying Eskom.

He was very concerned about the Eskom report. It indicated significant disagreements about the exclusive authority for electricity distribution. This created a significant stumbling block in terms of engaging with Eskom directly. What was very concerning was that what had not been agreed on was that there should be an engagement by the DGs of various Departments and the CEOs of SALGA and ESKOM. It was astounding that those role players were having a problem in coming together.

Ms N Mente-Nqweniso (EFF) referred to the protection of the consumer, and asked if Ministers of CoGTA and Public Enterprises had had discussed stopping Eskom from switching off the lights. In the presentation, they were recommending that Eskom should not allow black outs, and that they should rather switch if off earlier, but that was also wrong because it interrupted business. It did not matter if it was done in the middle of the night.

Ms Mente asked whether the MITT had dealt with the root causes. It had been indicated earlier that it was an issue that had come with their predecessors around 2016. By that time, the allocation of budgets was accommodating the Eskom bill to the municipalities. For some reason, some did not pay. The debt had kept on accumulating to the point where it was now R17 billion.  How was the team dealing with people in municipalities who failed to pay? That should be a focal point before talking to municipalities who owed Eskom.

Ms Mente asked if the team had looked at the supply of electricity to the people being done directly by Eskom only, and not done by municipalities as well. She claimed there was a huge disparity, and consumers had to be protected from over-charging by municipalities. She asked if the team had had discussions on finding other ways for municipalities to make revenue.

She was uncomfortable with the recommendation to have collection agencies, as that meant the government would have to pay money to other people collect the money that was owed to the government, and that should not be the case. It would just be adding another debt on top of the money that the government did not have.

Mr Hlengwa said that the biggest predicament was that there was Eskom on one hand, which was running a business, and the municipalities on the other hand, that were providing the services. There was therefore bound to be a clash over the prioritisation of how things should move forward. One would be very interested to get to the extent to which Eskom was cooperating with the IMTT process. The document presents more questions than certainty regarding whether the process would arrive at a logical conclusion in the context of the urgency of the situation. He did not get a sense that Eskom recognized that first and foremost, as a state-owned entity, its primary objective was to ensure that most of the people accessed electricity, ahead of the profit motive. To chase profit ahead of service delivery was a concern.
 
He recalled that in August 2014, he had posed a question to the then Minister of CoGTA about the municipal debt, which at that time had been R10.8 billion. The Minister had committed then that this would be sorted out. This problem had been around since time immemorial, and there was awareness of the shortcomings. While one welcomed that there had been progress so far in diagnosing the problems and presenting sets of recommendations and alternatives, he was concerned about the lack of urgency because it was over four years now since that issue had been raised, and nothing had been done.

The Minister had said they had to come to report because they had been asked to do so. He asked if the Committee could get a timeline as to when this process was going to be concluded.

Mr Hlengwa commented on the issue of consequence management in municipalities. As far back at 2014, municipalities had indulged in the typical borrowing “from Peter to pay Paul.” They would collect the money from consumers, but because of their own financial shortcomings, the municipality would redirect those funds to other programme and functions. He would be interested in the Committee being presented with the state of financial help provided to municipalities, and the extent to which the redirection of funds had taken place. At the heart of it was the issue of consequence management. When one started talking about writing off debt, it sets in to motion a very wrong concept, where municipalities would know that if they dragged the non-compliance out long enough, it would be circumvented with a write off. Who was going to underwrite the write-off? These were all serious considerations that needed to be taken into account, because the recommendations may come across as a knee jerk reaction or a cosmetic solution, and not drill down to root causes or hold people accountable.

Mr Booi said that the ministry must understand that at the start of the discussion, it had been about the authority of the executive over the municipalities. After a lot of begging had been going from one minister to another to help with the intervention, SCOPA had been forced to take up the matter, because there seemed to be nobody in the executive who wanted to take responsibility for it. This was reason for the agitation of Members over how the executive was handling the matter, because it seemed to be ignoring the process of getting councillors’ support, and ensuring Eskom and the councillors worked together. The Committee was very sympathetic to Eskom because international pressure had been put on it to deliver and prove had the support of government so it could get investors from outside to come and invest in it.

The Chairperson said that the articulation of the challenges beyond just the debt of Eskom had been properly made. Mr Ross's statement, that there were over 100 municipalities that had unfunded budgets just gave an idea of the extent of the problem. Members would always emphasise the political aspect and not the technical aspect.

He observed that this was the second meeting to which the Minister had come alone. Not even the Deputy Ministers from the affected Departments were there. He asked the Minister was he was driving this issue by himself. Once one had political agreement at the leadership level, the technical issues became much easier.

From what the Members had said, he would not want the Minister to comment on the IMTT and Eskom. The focus should be on the way forward. How soon would there be a resolution to this matter?

 
Minister’s response

Dr Mkhize said that he understood the discomfort Members of SCOPA were experiencing. They had dealt with this matter for a long enough to feel that a solution was needed urgently. The IMTT had tried to push as much as possible to get the matter resolved, and had hoped it would have been done by now. The complexity was what had delayed it.

Regarding Eskom, there had been a bit of misunderstanding regarding the report that was needed in terms of the expectation of the Committee. The report had not been anticipated. A lot of the issues that would have been tabled were issues that would be their views, but the team had in fact gone through a lot of these issues inside the committees.

The IMTT did have a problem of lack of cooperation from Eskom in terms of attending meetings, and engaging on issues. When there were areas of disagreement on several issues, the team ultimately got to a conclusion. There was therefore progress.

Regarding resolving the issues to a conclusion, the team would do this on 27 November when the two Cabinet Committees would meet to receive the report. That was probably how far one could go about this matter. The commitment to get the matter resolved came from the President to the rest of the Cabinet.

Dr Mkhize said that the rising debt was a matter of concern. This debt should not be rising the way it was, and therefore the team should be acting on it. There were challenges in the municipalities that were broader than just the Eskom debt. The team was going out to try and clamp down on unfunded budgets in several municipalities. Where this was found, the team was forcing the municipalities to go and meet and readjust and bring them to reasonable numbers. This was the basis of negative audit outcomes, and the team was aware of that and was actually very strong in dealing with these issues.

Regarding why there had not been any action in the past while the debt had increased, there were two issues. The first was the approach the team had taken in dealing with municipalities. The team had realised that it would require a lot more than just a outside intervention, like section 139, to deal with these issues. One required strong section 154 support for all the municipalities, or most of them. That was where the team had invested a lot of resources to deal with the challenges, so that after intervening in one municipality, it would be possible to do the same at others.

The team had got Treasury working with CoGTA on a memorandum of understanding (MoU) to create a basic revenue collection model which would help municipalities that had problems with Eskom to recover. The bottom line was get all those municipalities to generate their own revenue, so that was very important.
One of the areas of agreement was dealing with defaulting municipalities.

Dr Mkhize said that the IMTT should investigate the response of government before Eskom had to be forced to go to court. If there were issues of consequence management, individual leaders had to begin to take responsibility and action be taken against transgressors. There should be ways to locate culpability so that everybody knew if there was a default, somebody would be able to explain why. It must be convincing so that one must not actually be dragged down by maladministration and incompetence to this level. There was a need for the team to go into that in a lot more detail.

The team was also dealing with the problem of negative audit outcomes related to fruitless and wasteful expenditure. It would be supporting the work of the Auditor General on the need to implement disciplinary proceedings. .

Regarding pricing and the ISMO bill, he would not respond on that because it was part of a debate that was not so much COGTA’s focus, except that in terms of the pricing there was a whole issue around the restructuring of the debt and the pricing model. In that regard, there was need for the team to go into more detail.

Dr Mkhize said it was true that there had to be pressure to conclude this matter. The issue had to be resolved politically. The IMTT had told Eskom and SALGA that it would not help to go to court. So while there were tensions, the team just wanted SCOPA to be aware of how it was dealing with the situation, not because it would not be able to resolve it. The matter would ultimately get solved.

Regarding the protection of consumers, the team was going to refine instruments so that the consequence management happened at the municipal level as a matter of process immediately before one even got to the point of dealing with huge financial consequences. CoGTA was keen to make sure that that kind of level of activity was given the necessary attention. In this case, there was a question of what the balance between Eskom as a business and Eskom’s service responsibilities should be. However, it should be accepted as well that Eskom was running on a debt based on the external markets, and those external markets could not be given an impression that there was no responsibility by the shareholder to ensure that the company recovered and could generate proper revenue. The team was committed to ensuring that Eskom had to be a respectable and thriving company that must run its services properly and ensure that it collects the revenue it was owed

The challenge was the way the system worked. The municipalities must raise funds out of the services by law, and 63% of the revenue for the municipalities came from electricity. There was no way of avoiding the fact that that was the way things were done. The municipalities were normally encouraged to load their targets and consult their budgets. If they did not agree with that, then they had to reconsider it.

The communities were the stakeholders who had to decide whether they accepted the way the municipalities were being run or not. Everywhere municipalities had to publish their tariffs and show their budgets, and the community had tp go into the details and say whether they agreed or not. These were the kind of checks and balance that were involved in the process. The municipalities had to be sensitive to what they provided to the communities, but it was not only about electricity -- there a whole lot of other services that municipalities must be able to provide. For that, they had to be transparent about how they were using their funds.  That was the way one protected honest paying consumers.

Regarding whether municipalities were disclosing how much they were collecting and sending to Eskom, Dr Mkhize said 10 municipalities had come to the team and gone into details of where their money was going. It was true that some of them were no longer able to cope with the debt. It was also true that for some of them, the biggest challenge was the way they were managing their revenue. That was where the team was focusing. Each of the municipalities had to take responsibility for their debt, for their revenue and for the state of the running of those municipalities. They had to take that responsibility

The meeting was adjourned

 

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