DEBT OWED TO MUNICIPALITIES

PRESENTATION TO THE PORTFOLIO COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL

AFFAIRS

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PRESENTATION OUTLINE

Purpose of the presentation Debtors age analysis by customer group and province Government debt Historical background on government debt owed to municipalities Progress on payment of intergovernmental debt Government debt by province as at June 2014 Comparison of government debt for all municipalities and for the 20

identified municipalities that are owed the most Key challenges affecting payment of government debt Conclusion

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Purpose of the presentation

To provide the Portfolio Committee with the status of debt owed to municipalities; and

To report on the progress and challenges experienced in the recovery of these outstanding debt.

Debtors age analysis by customer group: June 2014

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Debtors age analysis by customer group: March 2014

Aggregate municipal consumer debt was R94 billion as at June 2014This was R7 billion more than the R86.7 billion reported in June 2013. Government’s share of the outstanding debtors is 4.8 per cent or R4.5

billion. The largest component relates to households which accounts for 61.1

per cent or R57.9 billion followed by commercial or business for 21% or R19.7 billion and other category of debtors for 12.6% or R11.8 billion.

Non payment can be attributable to economic slow down, unemployment impacting on households ability to pay as well as the lack of political will to collect.

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Debtors age analysis by customer group: March 2014

Of the total outstanding debt, metropolitan municipalities were owed R52.9 billion in outstanding debt as at June 2014 and this represents an increase of R4.2 billion from the same reporting period of 2012/13 FY.

Secondary cities were owed R17.1 billion in outstanding consumer debt as at June 2014.

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Debtors age analysis by province: June 2014

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Of the aggregate municipal debt of R94 billion, the following provinces have recorded the highest level of debt

Gauteng R41.1 billionKwaZulu Natal R10.1 billionAll other province have recorded debt of less than R10 billion each.

PROVINCE 0-30 DAY 31-60 DAYS 61-90 DAYS OVER 90 DAYS TOTAL

Eastern Cape 754,277 333,628 219,117 4,867,940 6,174,962

Free State 781,469 338,595 293,251 7,642,675 9,055,990

Gauteng 6,674,643 1,018,718 1,258,507 32,167,810 41,119,678

KwaZulu Natal 1,281,316 448,172 345,988 8,066,555 10,142,031

Limpopo 243,693 127,735 35,198 3,098,276 3,504,902

Mpumalanga 445,635 162,404 149,518 5,509,297 6,266,854

Northern Cape 169,526 78,568 67,799 2,045,821 2,361,714

North West 597,931 255,591 184,554 5,939,847 6,977,923

Western Cape 2,026,514 273,028 230,891 5,890,002 8,420,435

TOTAL 12,975,004 3,036,439 2,784,823 75,228,223 94,024,489

Historical background to the government debt owed to municipalities

Prior to 1994, NDPW was deemed the custodian of most state-owned properties and therefore took the responsibility for payment of some property rates;

• In April 2008, provincial properties were devolved to the provincial departments of Public Works

• Prior to the devolution of function to provinces, National Treasury made budget available for the payment of all outstanding rates

• National Treasury further requested municipalities to submit all outstanding invoices relating to prior devolution of properties to the province and invoices amounting to R443 million were submitted, and to date R243 million has been paid.

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Progress on payment of intergovernmental debt

The national Department of Public Works is appointing the service provider to audit and verify invoices relating to prior devolution of properties deemed provincial to the departments of provincial Public Works of debt (R200 million).

The verifying and auditing of outstanding debt is going to be done in two phases. The first phase is planned to be completed before the end of

2014/15 financial year and will mainly focus on the outstanding debt of R200 million.

The second phase of the project will relate to the verification and auditing of government debt invoices which amounts to R3.4 billion

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Government debt: June 2014

• In aggregate, as at June 2014, government owed municipalities R4.5 billion or 4.8 per cent of the total debt and this includes R200 million prior devolution outstanding debt.

• Of the total debt owed by government to municipalities; R1.9 billion owed by the 20 identified municipalities for support by the national steering committee.

The Steering Committee which comprises of CoGTA, DPME, National Treasury, National Public Works and SALGA and was formed in June 2011. From the 2014/15 financial year the progress by the steering committee is monitored by FOSAD.

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Government debtors by province and age analysis : 30 June 2014

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PROVINCE

0-30 days R0'00

31-60 Days R'000

61-90 Days R'000

OVER 90 Days R'000 TOTAL

Eastern Cape 56,544 29,397 13,527 241,690 341,158

Free State 97,685 40,195 43,140 401,403 582,423

Gauteng 132,782 32,767 44,847 732,072 942,468

KwaZulu Natal 70,988 30,299 20,921 364,531 486,739

Limpopo 15,338 21,741 (107,863) 445,951 375,167

Mpumalanga 42,773 6,775 10,704 813,885 874,137

Northern Cape 18,680 6,904 5,953 244,948 276,485

North West 32,681 14,900 11,032 379,879 438,492

Western Cape 87,089 17,803 10,776 71,056 186,724

TOTAL 554,560 200,781 53,037 3,695,415 4,503,793

Comparison of Government debt : March & June 2014

Main contributors to debt increase was Free State, Limpopo and Western Cape have recorded a decrease in debt of R150.6 million, R139.6 million and R114 million respectively in the period under review.

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PROVINCE Mar-14 Jun-14 Incr/Decr in R'000 Incr/ Decr %

Eastern Cape 355,942 341,158 (14,784) -4%Free State 431,732 582,423 150,691 26%Gauteng 986,409 942,468 (43,941) -4%KwaZulu Natal 433,492 486,739 53,247 12%Limpopo 235,477 375,167 139,690 59%Mpumalanga 872,637 874,137 1,500 0%Northern Cape 256,447 276,485 20,038 8%North West 425,789 438,492 12,703 3%Western Cape 62,031 186,724 124,693 201%TOTAL 4,059,956 4,503,793 443,837 11%

Comparison of government debt for 20 identified municipalities: March & June 2014

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Province Municipality

Debt as at

March 2014 Debt as June 2014

Debt Incr or

(decr) R'000

Incr or decr

in %

Nelson Mandela 49,272 63,614 14,342 23%Matatiele 15,561 16,145 584 4%Port St Johns 5,511 6,655 1,144 17%Mangaung 184,299 207,601 23,302 11%Maluti-a-Phofung 59,954 60,392 438 1%City of Johannesburg 352,529 308,411 (44,118) -73%Emfuleni 128,885 127,293 (1,592) -1%Msunduzi 144,582 157,628 13,046 8%Uthukela DM 1,616 2,111 495 23%eThekwini 180,816 194,889 14,073 7%Ba-Phalaborwa 29,890 20,489 (9,401) -46%Polokwane 17,033 57,665 40,632 70%Emalahleni 27,299 33,343 6,044 18%Nkomazi 7,549 11,274 3,725 33%Mahikeng 226,620 238,676 12,056 5%City of Matlosana 29,052 30,603 1,551 5%

Kgatelopele 3,671 4,383 712 16%Sol Plaatje 207,795 239,536 31,741 13%City of Cape Town 9,450 141,410 131,960 93%Swellendam 2,732 2,161 (571) -26%

TOTAL 1,684,116 1,924,279 240,163 12%

Gauteng

Free State

Eastern Cape

Western Cape

North West

Northern Cape

Mpumalanga

Limpopo

KwaZulu Natal

Comparison of government debt for 20 identified municipalities: March & June 2014When comparing March and June 2014, government debt have

increased by R240 millionThe recorded increases attributable to the following municipalities

Polokwane R41 million Sol Plaatjie R31 million Mangaung R23.3 million

Despite the recorded increase, there are some municipalities that have recorded decrease on government debtCity of Johannesburg R44.1 millionBa-Phalaborwa R9.4 million

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Challenges affecting payment of government debt

Some section 21 schools are disputing invoices provided by municipalities.

Some municipalities are charging interest on disputed accounts.There is no standard approach to handle the transfer of properties by

Human Settlement Departments to municipalities.Municipalities continue to bill the department for service consumption by

residents until change of ownership to occupants is effected.Tenancy in gvt property has been a contentious issue that has constantly

surfaced as an impediment in the payment of outstanding debt.

What are the actions that government is proposing for GVT debt?The Minister has written to MECs requesting them to

indicate actions they are putting in place to support collection.

The department in collaboration with Public Works is engaging the services of a provider to resolve disputed invoices

Municipalities have been engaged as part of the actions on audit outcomes to improve their asset registers

The Human Settlement department is being engaged in resolving matters relating to transfer of RDP houses

Municipalities are encouraged to vigorously implement their credit control policies and by- laws (Business)16

Mechanism put in place to assist municipalities to collect Debt

The matter of debt has been elevated to FOSAD MANCO Premier Coordinating Forums are also engaging provincial department

owing municipalities to pay

COGTA’s role COGTA is supporting municipalities by assessing the credibility of

the Credit control and debt policies in line with the provision of the Municipal Systems Act

Ensuring that there are campaigns run cultivating a culture of payments by communities for services rendered using ward committees

Municipalities to ensure continuous provision of services Municipalities establish a customer care and management

strategies and in the event of service disruption to communicate such to customers

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Recommendations

The report is provided to the committee for noting,

THANK YOU