A view of the Orlando Towers in Soweto, Johannesburg. Picture: 123RF/Nicolas De Corte
A view of the Orlando Towers in Soweto, Johannesburg. Picture: 123RF/Nicolas De Corte

The City of Joburg will this month embark on road shows to educate residents about its new debt write-off plan. The Municipal Debt Rehabilitation Programme, which will be launched in September, is intended to place defaulting residential ratepayers back in good standing by clearing their debts to the metro.

It’s a localised attempt to manage a broader problem. The Gauteng debtors book is high, at about R62bn, says Tracy Ledger, of the Public Affairs Research Institute at Wits University. In June, Joburg’s consumer debt contributed R24.5bn to that total, with residential debt accounting for about R9.4bn.

It’s a hefty burden to carry in a moribund economy — one not likely to lift any time soon. As Ledger notes, paying for municipal services that are often of a poor standard is unlikely to top consumer priorities in the face of more pressing concerns. "When it comes down to feeding your children or paying the municipality, there’s only one choice."

For Joburg finance MMC Funzela Ngobeni, such "tough economic times call for an innovative approach to mounting municipal debt".

Enter the debt relief plan, which received wide support in the council. It aims to tackle both problems: aiding struggling consumers by focusing on rehabilitation, and helping the city deal with the rising number of debtors on its books. And, by writing off historical debts under strict conditions, the city hopes to ensure future compliance with its accounts.

Through the programme, strained households will be able to apply for municipal debt rehabilitation. Those who meet the city’s criteria (see box) will receive immediate relief through a 50% debt write-off. If the qualifying account holder then complies with all the requirements of the programme — including keeping accounts up to date and allowing for regular inspection of metered services — his or her remaining debt will be written off over a three-year period.

Karen Heese, an economist at Municipal IQ, a data and intelligence service that monitors SA’s municipalities, believes the city’s programme is "an important and potentially beneficial one, if it’s affordable".

She says the programme lightens the burden on financially stressed residents who are not eligible for free basic services but are also not high-income earners. It also encourages compliance, and strengthens the relationship between customers and the city. And it may allow the city to claw back at least some otherwise unrecoverable debt through the 50% provision.

"The cost is the key issue," she says. "But properly managed and with a good response, the benefits should outweigh the costs."

DEBT WRITE-OFF

Who qualifies?

Joburg’s debt write-off applies to residential account holders with:

• An account balance that had been in arrears for more than 90 days at the end of June;

• A combined income of the account holder/s and spouse of between R4,550 and R22,000 a month; and

• Total property holdings not exceeding the value of R600,000.

Quite what those costs will be is not yet clear. At present, the city doesn’t know how much of the R9.4bn in residential debt comes from qualifying households, says city finance spokesperson Happy Zondi — though Ngobeni puts the write-off at a possible R1.5bn.

"We will know the exact quantum only when the customers register or apply for the scheme," says Zondi, adding that the write-offs will allow the city to reduce its bad-debt provisions in its financial statements.

The timeframe for the programme is also uncertain. Residents will be able to apply for debt relief when the programme is launched in September — but decisions about extending it will be made only once a review has been conducted at the end of the year.

Given the scope of its debt problem, the city also needs to look elsewhere for solutions — such as other government departments, which Ledger says are the worst offenders when it comes to nonpayment.

She also believes Eskom could be more proactive. "The 1998 white paper on local government said it was essential that municipalities retain the right to use electricity disconnection as a credit control measure, and that legislation should be put in place to give effect to that — but this was never done.

"Eskom now supplies electricity directly to about 50% of all households, which means that … municipalities cannot use electricity disconnection as a credit management tool [for about half of all households]." This makes it difficult to enforce payment of municipal services that are harder to disconnect, such as water.

Ledger believes Eskom could assist municipalities with credit collection — and in turn boost their ability to repay the utility — by agreeing to suspend the service to customers who have not reached a rate repayment agreement with the municipality.

Meanwhile, Ngobeni says the city won’t stop trying to collect outstanding debt. "There are various interventions being implemented," he says, including sending pre-termination notices, making arrangements for acknowledgment of debt contracts, and, "as a last resort", terminating services.