Free Basic Services At The Municipal Level

On 30 September 2017, South African municipalities were collectively owed R143.6 billion by consumers, according to the latest National Treasury report on municipal finances. R101.6 billion of this amount was household debt. If consumer debt is limited to below 90 days, then the actual realistically collectable amount is estimated at R22.9 billion.

This staggering figure is the result of numerous factors and underscores a trend that has existed in local government for a number of years. It has a profound effect on the ability of municipalities to address governance challenges and to fulfill their mandate. Municipalities owed their creditors R38.9 billion as at 30 June 2016. The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash flow challenges.

While there are often political reasons behind non-payment, the inability to pay due to South Africa’s high unemployment and poverty rate is an obvious factor. Municipalities have therefore developed Free Basic Service (FBS) programmes in order to determine who is unable to pay and to subsidize them. The funds allocated to FBS should not be used to support those who are able to pay.

However, these programmes face numerous challenges in determining who requires this support and ensuring that they receive it. The challenges will be explored in this brief.

I felt enraged when I had to start paying for electricity in 2004. Ït happened when I got my first job and left my mother’s house in Zola North. Like many Sowetans, we did not pay for electricity at home, which is why we could afford to have the heater on 24/7 during winter ... I have never heard any of my friends in the neighbourhood talk about paying for electricity, rates, taxes or utilities. - Siphiwe Masondo, 2015,as reported in City Press, 15 October 2015

The principles

A basic municipal service is defined in the Municipal Systems Act as a municipal service that is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment. These municipal services must:

be equitable and accessible;
be provided in a manner that is conducive to
- the prudent, economic, efficient and effective use of available resources; and
- the improvement of standards of quality over time;
be financially sustainable;
be environmentally sustainable; and
be regularly reviewed with a view to upgrading, extension and improvement.

The design of FBS systems is the responsibility of individual municipalities. However, there are broad directives from the Department of Co-operative Governance and Traditional Affairs (COGTA). The guiding COGTA principles are; equity, efficiency, environmental sustainability, financial viability, promotion of economic development, implementability, and ensuring that the correct people benefit. More specifically there are minimum standards for the types of basic services that must be provided. A free basic water supply should allow for consumption of 25 litres per person per day or 6 000 litres per household per month, and each household should receive 50 free kilowatt hours of electricity per month. The sanitation requirement is for a safe, clean and hygienic toilet near the household, with an additional 3 000 to 4 000 litres of water per month if the toilet is connected to a sewer. A locally appropriate level of waste removal is also stipulated.

Targeting

There are multiple ways that different municipalities use for determining who should receive these services.

1. Means testing, whereby families are targeted for basic services if they can prove their income is below a certain threshold (this is usually around R1600 per person per month). While this seems like the most logical it is often very difficult to implement outside small, stable, and urban municipalities and often disenfranchises those that it aims to help as they struggle to engage with the administration that is needed to maintain this system in applying for the appropriate relief.

2. The value or size of the customer’s land and dwelling. However, this requires an accurate property valuation roll and is often an inaccurate proxy for poverty.

3. Universal free basic services. Here all consumers receive the basic allocation. The complications are:

the variation in household size, making an appropriate allocation for water difficult.
dealing with cases where there is more than one household on the same property, a common occurrence in South Africa.
the missed opportunity to collect revenue from those who can afford to pay. This can be offset by a stepped tariff.

4. Geographical targeting. All households in specific areas. While apartheid era spatial planning often makes this a viable approach in South Africa, it can still be a relatively inexact method of identifying those who need subsidized basic services. There is no ability to distinguish between individuals with different incomes in the targeted areas.

Combinations of these approaches can be used. For example, Ekuruhleni defines an indigent household as one which receives income less than two state old age grants or occupies a residential property values at less than R 150 000.

The extent and funding of free basic services

Table 1 indicates the extent of free basic services in 2016.

Table 1 - Service consumers, 2016
Thousands

Service	All	FSB	FSB
	consumers	consumers	per cent

Water	12752	4711	36.9%
Electricity	11161	2455	22.0%
Sanitation	11169	3349	30.0%
Solid waste	9577	2776	29.0%

Source: Statistics South Africa, Non-financial census of municipalities for the year ended 30 June 2016, Statistical Release P 9115, 31 May 2017

The percentages of consumers which receive free basic services vary dramatically between provinces.

The National Treasury’s view is that there is a constitutional expectation that the Local Government Equitable Share Grant should fund the provision of basic services as a priority. R 57.0 billion was allocated to the LGES in the 2017 Budget. Even so, many municipal free basic service schemes are highly inefficient and on the verge of collapse due to financial pressures.

A back of the envelope calculation of what a properly targeted basic free service package would cost at the consumer and national level is presented in Table 2. The unit prices are estimates based on Johannesburg tariffs for 2017/18. 40% of households are assumed to qualify for free basic services. The criteria for targeting should be aligned with a national poverty line, even if alternatives to means testing are used.

Table 2 - Cost of free basic services, per month

Service	Quantity	Unit price	Total cost
			(Rand)
*Per month*
Water	9 cubic metres	R 10	90
Electricity	50 KwH	R 1.50	75
Sanitation			120
Waste removal			120
Rates relief	0.009 cents/Rand	R 100 000	75
	(annual)
Total			480
*Annual*			5760
40 % of 16 million households			6400000
Annual cost (R billion)			36.9
Per cent of LGES			65%

Relief to households which narrowly miss the targeting criteria can be provided by stepped tariffs.

It is impossible to assess how well targeted the FSB programme currently is, either at a municipal or national level.

Conclusion

Two types of error are possible:

The FSB package may not reach households who need it.
Households who do not need it may not be paying for the services they consume. Many non-poor households believe that they have entitlements, and more extensive ones than the FSB package. The Soweto household which kept the heater on 24/7 during winter would have run through the basic monthly electricity allocation in less than three days.

Rafael Friedman
Researcher
rafael@hsf.org.za

Sources:

http://www.treasury.gov.za/comm_media/press/2017/2017120801%20Press%20Statement%20-%201st%20Q%20S71%20Publication%20-%2005%20December%202017.pdf

https://businesstech.co.za/news/government/115844/south-africans-owe-municipalities-r118-billion/

file:///C:/Users/rafael/Downloads/Chapter%209%20-%20Municipal%20Consumer%20Debt%20in%20South%20Africa.pdf

http://sacitiesnetwork.co.za/wp-content/uploads/2014/07/secondary_cities_in_south_africa_with_more_detail.pdf

file:///C:/Users/rafael/Downloads/Media%20release%20-%202nd%20Q%20S71%20Publication.pdf

http://city-press.news24.com/Voices/Debate-Should-township-residents-pay-for-municipal-services-20151015

https://www.da.org.za/wp-content/uploads/2016/04/DA-2016-LGE-Manifesto.pdf

http://www.treasury.gov.za/comm_media/press/2016/2016060703%20Local%20Government%20Revenue%20and%20Expenditure.pdf

file:///C:/Users/rafael/Downloads/Ringane%252C+J.T..pdf (page 45)

https://municipalmoney.gov.za/about