Johannesburg customer debt reaches R49.65 Billion

The Organisation Undoing Tax Abuse (OUTA), through its initiative JoburgCAN, is raising alarm over the City of Johannesburg’s recent introduction of a prepaid electricity surcharge, describing it as a poorly conceived strategy to address the City’s burgeoning customer debt, with debt older than three months now standing at an alarming R49.650 billion.

“The new prepaid surcharge appears to be a lazy fundraising exercise by authorities who have no clear strategy for addressing the skyrocketing customer debt whilst placing the burden on paying residents and business to cover the City’s inefficiencies,” says Julius Kleynhans, Executive Manager for Local Government at OUTA. “The City needs to provide transparency on how the revenue from this surcharge will be used, especially given the lack of its reflection in the current budget.”

On 1 July many households were abruptly surprised by the new prepaid service charge being implemented by the City, leading to widespread public outcry. City of Joburg and its electricity utility City Power claimed there had been public consultation, insisted the charges would remain, and dismissed any opposition as political, leaving residents confused, frustrated and some households under severe financial pressure.

Key points of concern

JoburgCAN has identified some critical issues that need immediate attention to address the underlying problems associated with the new surcharge and the City’s financial management.

Rising customer debt: The total customer debt has surged by R4.604bn in just six months to R49.650bn as at 31 March 2024 (the latest figures available) and has nearly doubled over the past four years. This includes a substantial R40.309bn owed by households for utilities such as water, rates, sanitation and electricity. This is the debt older than three months, which is regarded as bad debt. These figures are from the City’s Section 71 report quarterly reports to National Treasury.

Electricity debt increase: The electricity debt alone stands at R7.654bn, having increased by R709 million over six months. This debt largely pertains to postpaid customers, with prepaid users paying upfront and incurring no debt.

Inadequate indigent register: Despite receiving annual funding from the national government to support indigent residents, the City has failed to implement an effective register, leaving many without necessary support and exacerbating the debt issue whilst grants were either not spent or used for other purposes instead of subsidising the poor.

Mismanagement of public funds: The City is accused of overspending on remuneration packages, staff numbers, and personal security, while underspending on essential maintenance. This raises questions about the true allocation of funds raised through the new surcharge.

Failed public participation: The huge backlash against the prepaid surcharge underlines the City’s failure to run a meaningful public participation programme around the budget, leaving customers angry and resentful. This surcharge illustrates the need for the public to participate in the municipal budget process. If charges like this are to be exposed and opposed, it needs public involvement in the process.

The City should encourage customers to move to prepaid

Julia Fish, OUTA’s Manager for the JoburgCAN initiative, emphasises that instead of penalising prepaid users with additional charges, the City should incentivise the transition to prepaid electricity to help manage and reduce customer debt. “Encouraging the switch to prepaid with lower costs would be a more effective strategy,” says Fish.

“We are concerned that while the City claims it needs the prepaid surcharge to pay for network costs, we do not see where the revenue from this surcharge is reflected in the budget. What will the City do with these funds?” asks Fish.

“The City has also failed to implement a realistic indigent register, despite receiving funding from national government every year to support this. This leaves the genuinely indigent with no access to funding, increases the customer debt problem, and allows City officials to spend that crucial funding elsewhere.”

Fish also highlights the need for public involvement. “This surcharge illustrates the need for the public to participate meaningfully in the municipal budget process. If charges like this are to be exposed and opposed, it needs public involvement in the process.”

Our actions and what you need to know

OUTA’s initiative JoburgCAN has initiated a Promotion of Access to Information Act (PAIA) request to the City of Joburg, asking for information including the cost-of-supply study that City Power was required to provide to the National Energy Regulator of South Africa (Nersa) to motivate the tariff increases. JoburgCAN has also requested clarity on the losses in the electricity sphere, the maintenance backlog, maintenance spending ratios, and the reality of depreciation and loss of City Power assets, and information on the indigent register.

OUTA alerted the public to the new prepaid surcharge on 23 April 2024

“We published a summary of our submission to the City, which included identifying and opposing the new surcharge, which the draft budget proposed as a higher amount of R553.73,” says Fish.
On 16 May, JoburgCAN commented on the City’s reworked budget, noting that the prepaid surcharge had been cut by more than half, but that the average electricity tariff increase was upped from 10.7% in the draft budget to 12.72% in the final, and noted that the block sizes in the prepaid high usage had been altered to cost users more.
“OUTA has previously warned the public of the CoJ’s attempts in 2018 to implement a prepaid surcharge, and has opposed this in submissions to the CoJ on the budget in the same year,” Fish adds.

Moving forward

JoburgCAN calls for a comprehensive review of the prepaid surcharge and urges residents to voice their concerns.

“The City must urgently re-evaluate its revenue streams and scrap the surcharge. Strategies to reduce customer debt such as expanding prepaid use, implementing high-profile disconnections, and reducing dispute resolution turnaround times will strengthen the City’s financial position,” says Fish.

Additionally, JoburgCAN calls on the City to urgently overhaul and expand the indigent register to ensure that all qualifying residents receive the support they are entitled to and urgently need. Ensuring that more residents are registered will not only provide necessary relief to low-income households but will also help address the underlying issues affecting the City’s growing debt and financial sustainability.