The Eastern Cape government stands to lose millions in funding after it failed to pay out a total of more than a billion rand owed to several local municipalities on time.
In a letter to finance MEC Mlungisi Mvoko, finance minister Enoch Godongwana threatened to withhold transfers of the provincial equitable share due to several departments’ failures to honour their commitments to settle the outstanding amounts.
The office of the finance MEC has confirmed receipt of the letter and is in the process of formulating a response to Godongwana, which is due by the end of May.
According to the letter, dated April 29, Eastern Cape provincial departments owed municipalities about R1.4bn for property rates and municipal services.
Of this, about R452.5m had been outstanding for more than a year.
“This prolonged nonpayment reflects a systemic failure to meet financial obligations and constitutes a serious or persistent material breach of the PFMA, read with Section 216 of the constitution by the relevant provincial departments,” the letter states.
“The entrenched culture of nonpayment undermines municipalities’ fiscal sustainability, service delivery and ability to pay creditors.”
While the letter does not provide a final figure for the total provincial equitable share that could be withheld or the names of the affected municipalities, insiders said the funding would be redirected and used to settle the outstanding debts with the municipalities.
The letter listed the following departments as having failed to settle outstanding debts:
- Agriculture: R78,494,975;
- Education: R197,833,781;
- Health: R168,227,658;
- Housing and local government: R52,097,955;
- Public works, roads and transport: R716,872,228;
- Social development: R1,802,574;
- Sports, arts and culture: R503,704; and
- Other departments: R164,741,011.
The total is R1,380,573,886.
According to the letter, Treasury regulations require that all payments due to creditors be settled within 30 days from receipt of an invoice unless determined otherwise in a contract or another agreement.
It said the province may submit written representations by May 30 as to why the equitable share should not be withheld.
“Furthermore, your representations must include proof of actual payments made to municipalities as well as a credible, time-bound payment plan that has been discussed and agreed upon with the affected municipalities,” it says.
“In addition, the province is required to outline the remedial measures already implemented or planned for implementation to prevent a recurrence of this noncompliance.”
Mvoko’s spokesperson, Pumelele Godongwana, said they were applying their minds to find the best possible solution and would then respond to the minister.
“We align ourselves with a view that creditors must be paid within the prescribed period of 30 days.
“This is why it is important that we find a solution that will support that view but also ensure that the provincial finances are not compromised.”
Asked about the reasons for the delays, he said government departments often failed to pay their municipal debts due to a combination of internal administrative failures and disputes over billing accuracy.
“Delays and errors in verifying and reconciling invoices lead to payment bottlenecks.
“Also, disputes frequently arise over incorrect property rates, inaccurate meter readings or disagreements regarding who is responsible for historical debt.
“Municipalities also often struggle to generate accurate property rates schedules or invoices on time, which provides departments with a reason to delay payment.
“There’s also a lack of accountability.
“A systemic lack of consequence management means that government officials often ignore the 30-day payment directive without facing any penalties for billed invoices that are not disputed.”
DA MPL Dr Vicky Knoetze said the National Treasury’s warning that it may withhold portions of the equitable share confirmed the severity of a payment crisis that threatened municipal stability and service delivery across the province.
“The National Treasury warned that it was considering action in terms of Section 216 of the constitution due to the failure of provincial departments to pay municipalities for rates and municipal services,” Knoetze said.
“The DA previously exposed the scale of this crisis through parliamentary questions to the provincial treasury.”
She said Mvoko had confirmed that municipalities had already resorted to debt collection processes and, in some instances, had begun restricting services to government buildings due to nonpayment.
“The National Treasury has now placed the provincial government on formal notice.”
The minister’s spokesperson, Mfuneko Toyana, failed to respond to several requests for comment by the time of publication.
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