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The South African Local Government Association (Salga), which acts as the representative voice of all 257 municipalities countrywide, is hunting for credible solutions to plug revenue leakages and improve revenue collection with cash owed to councils fast approaching the R500bn mark.The search has now taken it down the consultancy route. Salga has issued a request for proposal, a formal document that invites outside vendors to submit custom bids. Their task is to develop a revenue management plan that can be implemented by local government to create credible billing systems, hone collection strategies, recover long-outstanding debt, and improve indigent management.Salga’s document notes that municipalities lose about R25bn annually in water and electricity revenue due to physical infrastructure leaks, electricity and water theft, illegal connections, inaccurate or outdated meters and weaknesses in metering and billing systems. “Many municipalities continue to collect less than 70% of billed revenue, resulting in persistent cash-flow constraints and a growing gap between revenue billed and cash actually realised,” Salga’s request for proposal reads.“Municipal consumer debt has increased to approximately R467.2bn, while municipalities themselves owe creditors approximately R160.8bn, demonstrating the direct relationship between poor revenue collection and municipalities’ ability to meet their financial obligations.Many municipalities continue to collect less than 70% of billed revenue, resulting in persistent cash-flow constraints and a growing gap between revenue billed and cash actually realised.— Salga“High levels of debt, ineffective credit control and debt collection, inaccurate billing, unverified indigent registers, and weak enforcement further compound the problem.”Eskom and water boards have been on the receiving end of no payment from municipalities. The unbundling of Eskom into three units responsible for generation, distribution and transmission is at risk due to the R116bn owed by municipalities, debt the power producer has warned might accelerate to R358bn by 2031 unless immediate interventions are implemented.The latest auditor-general report into the state of municipalities paints a picture of dysfunction, marred by weak revenue collection, escalating consumer debt, cash-flow constraints, growing creditor balances, and unauthorised, irregular, fruitless and wasteful expenditure.Salga will ask the consultants to identify, quantify and support municipalities to reduce and prevent revenue leakages, including water and electricity distribution losses, illegal connections, meter-related losses, inaccurate billing, unbilled consumption, data deficiencies and other technical and nontechnical revenue losses.The organisation said given the scale and complexity of the challenges facing municipalities and their ability to be financially sustainable and resilient, councils require support in strengthening financial governance, institutional capacity and modernising revenue systems.Salga has also flagged the need to address the accuracy of South Africa’s indigent management to roll out a sustainable provision of free basic services. “A key challenge is the credibility, accuracy and regular verification of municipal indigent registers, which may contain outdated information, exclude qualifying households or include beneficiaries whose circumstances have changed,” it said.“Misalignment between municipal indigent registers, Stats SA socio-economic data and other government datasets further limits municipalities’ ability to accurately identify and support qualifying households and to distinguish between customers who are genuinely unable to pay and those who are unwilling to pay. “A credible, verified and council-approved indigent register will improve the targeting of free basic services, strengthen revenue collection from customers who can afford to pay, improve the credibility of municipal debtor balances and support more effective financial and service-delivery planning.”Operation Vulindlela’s second phase targets local government reforms to fix collapsing municipal service delivery, ring-fence utility revenues for water and electricity, and review municipal funding. The move by Salga to rope in experts to strengthen its internal capacity and enable the provision of revenue management and enhancement support to municipalities comes as voters gear up to vote in local government elections in November.Financially troubled cities such as Joburg, which has been run by a coalition government since 2016, are expected to be hotly contested. Big business has pledged resources under the government-business partnership to rescue the City of Johannesburg from severe financial and governance decline. The city is indispensable to South Africa’s economy, contributing 16% of the national GDP. Eskom received a reprieve on Friday when the city settled its R2bn debt after the utility had threatened to switch off the metro.Salga’s request for proposal also flags challenges faced by municipalities in accessing debt financing, development finance and capital markets due to weaknesses in their financial position, governance arrangements and technical capacity. “Poor revenue collection, weak balance sheets, inadequate financial controls, audit outcomes and governance inefficiencies can negatively affect municipal creditworthiness and the confidence of potential lenders and investors,” Salga said.“These challenges are compounded by limited institutional capacity for project identification, planning, feasibility assessment, financial modelling, costing, risk allocation and preparation of infrastructure projects for bankability. “As a result, potentially viable infrastructure projects may fail to progress from concept to investment-ready stage, limiting municipalities’ ability to diversify infrastructure funding beyond grants.”Business Day
