Municipalities steal billions meant for free electricity

By Hanno Labuschagne6 May 2021

Original article here

Billions designated to provide free basic electricity (FBE) to poor South Africans are disappearing in municipal budgets as wasteful and fruitless expenditure.

This means millions of poor families lose out on free electricity which could have significantly improved their lives.

These are some of the findings of a recent report from the Public Affairs Research Institute (PARI) called Broken Promises.

In the report, PARI analysed municipal budget expenditures on free basic electricity allocations and found that it was far below the amount which the national budget catered for.

National Treasury estimates how many indigent households there are in each municipality every year. They then calculate the cost of providing free services – such as water and electricity – to those people.

“The total cost of all the free services is multiplied by the number of estimated indigent households in each municipality, and that money is paid to the municipality,” PARI explains.

“This means that each municipality gets the money to pay for the free basic services directly from the national budget every year.”

PARI said that in the 2018/2019 period – the most recent year for accurate information from municipalities – the national budget provided funding for a total of 9.8 million households to get the free basic services, which include 50kWh of electricity.

However, only 2 million households had received the free basic electricity from their municipality.

Even when taking into account that an estimated 2.5 million households were not connected to the electricity grid, it would still mean there were 5.4 million poor households in South Africa that had to receive free electricity, but did not.

Electricity township shacks

PARI said in the 2018/2019 financial year year municipalities pocketed an estimated total of R6 billion in FBE allocations.

“If a municipality actually provides fewer households with the free basic service benefit (compared to how many are funded in the national budget), the balance of the money allocated to that municipality for free basic services goes into general revenue, and can be spent as the municipality wishes,” PARI said.

The institute claimed that municipalities were making it difficult for households to register as indigent on purpose, even if they were poor.

“The municipality is responsible for identifying poor households, registering them and then providing a package of free basic services (electricity, water and sanitation) every month,” it stated.

“All municipalities have different rules for what is an indigent household, but it should include all poor households.”

For customers who have prepaid metres or an electricity account directly with Eskom, the municipality is supposed to tell Eskom if they are a registered indigent household.

“Eskom will then provide you with the free electricity, and get the money for that from the municipality.”

Electricity poles Eskom

Eskom previously told MyBroadband that the indigent amount to qualify for Free Basic Electricity was a household income of R3,500 or less.

However, this could vary by municipality, in addition to the amount of free monthly power which is provided.

“The maximum amount is between 50kWh – 60kWh per household depending on the area or municipality you reside in,” Eskom stated.

The City of Johannesburg, for example, offers an allocation of between 10kWh to 30kWh as part of its Free Basic Services programme, which is based on your exact income.

PARI said that many households who were registered as indigent received other free services like water, but not electricity, even in cases where they had a formal electricity connection.

“Often people do not know that if they are registered as indigent they are supposed to receive all the free services,” the institute said.

PARI said that the situation had deteriorated over the last few years, with fewer households receiving FBE and the funding difference growing.

“This wholesale deprivation of poor households of their FBE has occurred over a long period of time,” PARI said.

“One of the cornerstones of South Africa’s policy to address poverty and inequality has been eroded to a truly astonishing degree.”

“Alarmingly, no one who is accountable for the implementation of South Africa’s socioeconomic transformation agenda seems to have noticed, much less done anything about it.”

This decline in households which received FBE over the last six years is illustrated in the table below.

PARI said the result of government’s inability to provide poor South Africans with affordable electricity had a number of worrying outcomes, including:

  • Poor households are forced to spend a much higher percentage of their income on energy than wealthy households. In South Africa, poor households spend up to 17 per cent of their income on energy. This is much higher than what wealthier households spend, and it means that there is less money available for other necessities, like food.
  • Many households face the threat of disconnection because they cannot afford to pay their electricity account.
  • Many households are forced to use dangerous energy sources like paraffin and polluting energy sources like coal because they cannot afford electricity.
  • Many small businesses and small farmers struggle to pay their electricity accounts, which threatens the survival of these businesses.

While basic electricity was the worst affected, PARI said that there were also other services delivered at a level significantly below the number of funded households in the national budget, and that the gap was getting wider each year.

“For example, fewer than one third of the households funded for the free basic water allowance are reported by municipalities to actually be receiving it,” PARI said.

“The number of households receiving free water declined by 1 million between 2018 and 2019.”

Water collection poor
Woman collecting water from a river next to a road leading to Umkhuze Game Reserve, South Africa.

PARI made several recommendations towards fixing the problem, including assisting municipalities with the administration necessary to increase the number of registered indigent households.

“There is no doubt that this will reduce local government revenue available for other (non-free basic services) expenditure,” it said.

In some municipalities this reduction will be significant, and the effect will generally be higher in municipalities that have high service-provision costs.

“This is no excuse not to proceed: if the state has decided to sacrifice the provision of free basic services in order to support the local government balance sheet then it should be clear and transparent about that decision.”

The current situation, where we effectively pretend to have a free basic services policy and then work behind the scenes to hollow it out, is untenable.

In addition, it has asked for clearer definitions and benchmarks for affordable access to sufficient quantities of clean and safe energy and improved oversight of the entire value chain.

This includes the FBE allocations being audited in the auditor-general’s annual reports for each municipality.

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