It’s an open secret that Mzansi’s municipalities are facing all sorts of problems and challenges and the failure to provide much needed services in communities.

• Hogging headlines in the media space often describes these challenges as Financial problems.

Many municipalities are experiencing financial difficulties, and some are unable to meet their constitutional obligations. Unfunded budgets have increased significantly in recent years, and municipalities that adopt them are unable to control their spending. 

• Another challenge facing most municipalities is unfunded budgets. According to a report widely published,  Municipalities with unfunded budgets spend more than their expected income, even when revenue is declining and debtors are increasing. 
• Failure to provide services

Some municipalities have been unable to provide services to the people, and have failed to meet the Auditor-General’s standards. 

• Infrastructure issues

Municipalities are responsible for a number of infrastructure areas, including water treatment, water reticulation, wastewater treatment, sanitation, electricity distribution, roads, and stormwater drainage. Common issues include water leakage in reticulation systems and neglect of routine maintenance on roads. 

BACK TO THE STORY!!! In his recent maiden Medium Term Budget Policy Statement, Gauteng Finance and Economic Development MEC, Lebogang Maile hinted the following at the Gauteng Provincial Legislature.

THE STATE OF GAUTENG MUNICIPALITIES

Honourable Premier, Gauteng’s municipalities are on a low growth trajectory. The most recent Gauteng Socio Economic Review and Outlook (SERO) published in 2024 indicates that economic activity in Gauteng municipalities saw a modest growth of 0.6 per cent, with marginal increase of 1.3 per cent and 2.8 per cent projected for 2024 and 2025, respectively. These minimal growth rates poses a threat to the province’s developmental goals, specifically in reducing poverty and addressing high unemployment levels.

Furthermore, the audit outcomes of Gauteng municipalities indicates significant governance challenges, particularly in terms of compliance. Compliance with legislation is not improving and remains a stumbling block towards good governance, as most municipalities still did not comply with procurement legislation. The most common findings identified by AG with respect to the challenges impacting the performance of municipalities relates to expenditure management, unauthorised, irregular and fruitless and wasteful expenditure, procurement and contract management, material misstatements or limitation in submission of annual financial statements and consequence management. Some progress was made where municipalities investigated unauthorised, irregular, and fruitless and wasteful expenditure. Additionally, disciplinary boards were established to deal with cases of financial misconduct.

In aid of credible annual financial statements, the Gauteng Provincial Treasury has embarked on operational plan to support and monitor activities. These include activities to improve the financial reporting control environment. On a quarterly basis, the team responsible assesses whether municipalities comply with the Municipal Finance Management Act (MFMA). These assessment reports identify opportunities for improvement within the financial reporting control environment. The Gauteng Provincial Treasury assess if municipalities are performing their key controls testing, while also assessing whether municipalities are implementing action plans developed in response to the outcomes of the previous year’s audit process. These plans are a requirement in terms of section 131 of the MFMA.

On a quarterly basis, the team also assesses the functionality of governance structures, internal audit activities and audit committees. The functionality of governance structures supports municipalities in achieving their own targets through systematic processes that identify and manage risks associated with the municipality’s objectives. Beyond the standard support given to municipalities, the GPT has also introduced new initiatives to improve the credibility of the annual financial statements (AFS). We have introduced the AFS Accelerator Program which requires municipalities to produce interim financial statements. Additionally, we are in the process of finalising the rolling out of a 3-year capacity building training program that will assist in capacitating municipal officials, councilors, and other relevant oversight structures to be able to effectively execute their respective legislative responsibilities. The training will cover broad MFMA areas including budgeting, revenue and expenditure management, asset management, risk management, accounting and audit support as well as supply chain management.

INCREASING THE REVENUE OF MUNICIPALITIES

Madam Speaker, the Gauteng Provincial Government’s commitment to support municipalities in enhancing their revenue capability is ongoing. We have a multi-pronged approach in giving support to municipalities. The Provincial Treasury has received numerous municipalities’ annual state claims which is the account for municipal property rates. These will be processed provided they are in order. The Gauteng Debt Committee will be the driving force behind the process of. The committee will expand its mandate to include national departments and parastatals within the municipal fiscal period for 2024/2025.

Electricity is the biggest source of revenue for the fiscal base of municipalities. The income municipalities derive from the said income stream finances a number of functions that may not be independently revenue-generating. It is for this reason that we deem the electricity business as important. Thus, the Provincial Treasury has embarked on an assistance program to all local municipalities through the population of the Tariff Setting Tool to ensure that all trading services will be cost reflective and aligned to tariffs approved by Rand Water, the National Energy Regulator of South Africa (NERSA) and other entities. Training has been conducted to aid municipalities in the usage of the Tariff Setting Tool and the Property Rates Reconciliation Tool. 

The Gauteng Provincial Treasury will be assisting the Emfuleni and Merafong City local municipalities, which are currently under the Financial Recovery Plan, to conduct an electricity cost of supply study to get their tariffs to be cost reflective. Because we recognise that the electricity business is cross-subsidising and finances municipal operations, we want to support our municipalities with cost efficiencies. This will improve and enhance their revenue to address service delivery.

ESKOM DEBT-RELIEF PROGRAMME

The national government, through the National Treasury, launched the debt relief package on municipal electricity debt owed to Eskom. There are several conditions, all essentially aimed at restoring a set of basic minimum financial management best practices in municipalities that are owing Eskom. The key objective of these conditions is to change the municipal culture of not paying bulk suppliers, which impacts on their own financial health and ability to continue with the provision of essential services such as bulk electricity and water.

Several Gauteng municipalities were granted approval by National Treasury to participate in the

Eskom Debt Relief Program. These are the Emfuleni, Lesedi, Merafong, Mogale City and Rand

West City local municipalities, with a combined ring-fenced amount of just over R1.6 billion. The Rand West City Local Municipality is the first municipality to receive a write-off of R279.72 million from the ring-fenced debt of R839.72 million after complying with the 14 conditions of the Eskom Debt Relief Programme. The National Treasury is currently busy with the final assessment of Emfuleni LM and Mogale City. In due course, the Gauteng Provincial Treasury will be making an announcement in this regard.

The significance of the Eskom Debt Relief Programme for Gauteng municipalities is that it will transform these municipalities by empowering them to build financial resilience and amplify their capacity to generate sustainable revenue. In doing so, the municipalities will generate muchneeded revenue to direct towards service delivery and infrastructure maintenance and development. In addition to the value to municipalities, Eskom will also be able to undertake much-needed maintenance of its infrastructure as well as improve its financial position. Energy security is crucial for South Africa, and certainly for the Gauteng economy that is reindustrialising through the strengthening of its manufacturing and logistics capacity.

For residents of Gauteng, the impact is especially notable and significant. The huge debt to Eskom has meant that municipal finances, which are already constrained, had to be directed towards the serving of debt to the power utility. And because money is not infinite, when it is directed towards the servicing of debt, it means it is being redirected from other key services that benefit our communities. Furthermore, as electricity is a crucial component of livelihood generation for many of our people, energy insecurity would mean that many families’ capacity for livelihood generation would be diminished, further deepening an already crippling cost-of-living crisis.

 

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