The National Treasury’s withholding of equitable share contributions from municipalities that fail to pay their debts is not a long-term solution because the department doesn’t have the capacity to act as a financial manager, deputy finance minister Ashor Sarupen said on Wednesday. Since 2024, the Treasury has routinely exercised its right under the constitution to withhold funds when municipalities fail to pay what they owe Eskom, water boards, the South African Revenue Service or pension funds. The equitable share is released on proof of payment of the bills. Sarupen’s comments came in discussions with members of the electricity & energy and the co-operative governance & traditional affairs committees with Eskom, the Treasury, the department of co-operative governance & traditional affairs and the South African Local Government Association on Eskom’s implementation of its distribution agency agreements with municipalities.Treasury has agreed to write off arrear municipal debt of R55.3bn to Eskom (as at March 2023) over three years, provided the municipalities that have signed up for the programme pay their current account debt to the power utility. Those payments will be matched by a predetermined write-off of arrear debt.Under the programme, which requires agreement by municipal councils, Eskom temporarily operates electricity services and undertakes billing and revenue collection in a ring-fenced business. The programme is regarded as vital for the long-term sustainability of the utility, which has had to delay the unbundling of its distribution division because of the municipal debt. Sarupen warned that if the distribution agency agreement system did not work, the only option would be for Eskom to attach the bank accounts of delinquent municipalities. He emphasised that municipal debt to Eskom, which now amounts to about R114bn, poses a systemic risk to the fiscus. Once municipalities drop out of the programme, Eskom can resume legal proceedings to attach assets.Poor response Agnes Mlambo, Eskom’s acting group executive for distribution, said that only 11 of the 71 municipalities in the debt relief programme had been able to comply with the terms, and just R4bn had been written off. The non-compliance of the 60 remaining municipalities contributed significantly to the increase in municipal debt, she said. Sadesh Ramjathan, Treasury’s director of local government budget analysis and revenue management, said 24 of the participating municipalities had received a one-third write-off of their debt. Electricity & energy minister Kgosientsho Ramokgopa said municipal debt to Eskom is symptomatic of a bigger structural problem related to the underperformance of the economy and the related inability of residents to pay, as well as the funding model of local government, the haemorraging of skills and the lack of investment in infrastructure. The capacity of municipalities has to be strengthened. The distribution agency agreement programme is not a silver bullet, he said. An official from the co-operative governance & traditional affairs department agreed that the programme isn’t a long-term solution, though it could be a transitional stabilisation measure. Still, it carries the risk of Eskom usurping the constitutionally enshrined power of municipalities over electricity reticulation. Opposition MPs were united in pointing out the corruption, looting, poor governance and lack of skills plaguing local government, which contributed to municipalities being in debt. Kevin Mileham, the DA’s spokesperson on electricity & energy, replied that the R467bn consumer debt to municipalities indicates officials are not doing their job of collecting revenue.