DEBT OWED TO MUNICIPALITIES PRESENTATION TO THE PORTFOLIO COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

2 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

3 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

Debtors age analysis by customer group: March 2014 Aggregate municipal consumer debt was R94 billion as at June 2014 This was R7 billion more than the R86.7 billion reported in June 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. 5

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

Debtors age analysis by province: June Of the aggregate municipal debt of R94 billion, the following provinces have recorded the highest level of debt Gauteng R41.1 billion KwaZulu Natal R10.1 billion All other province have recorded debt of less than R10 billion each.

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. 8

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 9

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 From the 2014/15 financial year the progress by the steering committee is monitored by FOSAD. 10

Government debtors by province and age analysis : 30 June

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. 12

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

Comparison of government debt for 20 identified municipalities: March & June 2014 When comparing March and June 2014, government debt have increased by R240 million The recorded increases attributable to the following municipalities  PolokwaneR41 million  Sol PlaatjieR31 million  MangaungR23.3 million Despite the recorded increase, there are some municipalities that have recorded decrease on government debt City of JohannesburgR44.1 million Ba-PhalaborwaR9.4 million 14

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 17

Recommendations The report is provided to the committee for noting, THANK YOU