Reform municipal funding to ease electricity crisis

Failing municipal funding models, tariff cross subsidisation and rising use of rooftop solar devices has meant rich users pay less per kilowatt than many working class households.

In the middle of a national Covid-19 lockdown, the smoke billowing from tyres, the fog of tear gas and sounds of rubber bullets fired into community protests in Chatsworth and Malmesbury, both in the Western Cape, expose South Africa’s contradictions. On 23 August, community activists from the Silvertown shack settlement and organisers from the Housing Assembly stood in protest against the ongoing lack of basic service provision by Swartland Municipality. In response the state subjected the cohort to arrests and detention in overcrowded cells in Malmesbury prison, breaching Covid-19 regulations.

State-imposed social distancing has given way to ongoing struggles for basic services involving disruptive protest. The demonstration comes in the aftermath of the 2014 community action demanding the expansion of government housing and access to water, electricity and sewer line services. At the time, the government promised service delivery improvements. After waiting in desperation, young people have taken to the streets in an attempt to transform their conditions.

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South Africa’s national electrification rate lies at over 85%, the majority of which is concentrated in urban metros. The residential electrical reticulation system, however, has historically been planned and structured around land tenure. Individual homes, farms, shared complexes and apartments connect to the national grid using a meter system developed by the state energy utility Eskom. The use of wood and paraffin in urban households is commonly due to the prohibitively high cost of electricity or a lack of electrical connection in townships.

Ongoing reports of corruption at Eskom and a chronic leadership crisis with a revolving door of executives have led to increasingly popular narratives of the decay of a once “great” institution. While it may be true that the postapartheid reforms have led to failure in the utility, what is often forgotten is the longstanding exclusion of black working-class communities. 

National electrification scheme

In 1985, the Regional Services Councils, seperated into local authorities, managed state service delivery in racially differentiated zones in alignment with the explict apartheid policy of seperate development. Townships housing an increasing sedentary working class at the periphery of major industrial centres began to receive selective upgrades in the late 1980s in response to the growing community-level protests threatening the legitimacy of the state. 

Black local authorities were severely underfunded, which led to a very limited capacity to invest in the expansion of infrastructure for the provision of water and electricity across their jurisdiction. They would then be forced into agreements with white local authorities to provide services under the industrial energy user class tariff collection regime. This effectively meant that residents served under black local authorities directly subsidised white local authorities, at an institutional level, alongside the ongoing rise in class status of its residents as a byproduct of the cheap labour regime used to power the new industrial economy. 

22 June 2020: City workers fix electricity pylons in the densely populated settlement of Stjwetla in Alexandra, Johannesburg. (Photograph by Ihsaan Haffejee)
22 June 2020: City workers fix electricity pylons in the densely populated settlement of Stjwetla in Alexandra, Johannesburg. (Photograph by Ihsaan Haffejee)

In the early 1990s, the impact of mass boycotts on payments for state services was being felt, notably including the effect of the 1986 Soweto boycott. These boycotts led black local authorities to a debt crisis that saw Eskom taking over these authorities’ jurisdictions. During the same period leading up to the eventual transition, political and economic sanctions forced the country into isolation. Local financial institutions responded to the instability by shifting investments from long-term assets to short-term speculative investments, marking a move towards financialisation, which weakened the power of the incoming political forces set to lead the immediate postapartheid reconstruction efforts. 

As the apartheid regime, led by the National Party, began to capitalute and move towards a transition agreement in the early 1990s, academics, leaders of local organisations and members of Eskom, largely allied to the ANC, began to debate the necessity of a national electrification scheme. A 1990 paper, Electricity for All: The Need and the Means by C Dinley, set out proposals that would help precipitate the multi-stakeholder National Electrification Forum (NELF). The NELF, and later the National Electrification Programme, framed national electrification as a developmental imperative and was financed largely by Eskom itself, integrating millions of people into the national grid with a focus on urban townships alongside rural service provision. The viability of this programme was strengthened by the considerable amount of local capital available to the state, and to Eskom specifically, to be mobilised for the new government, which marked a significantly different set of conditions to other newly independent African states. This policy shift marked a change in the role of Eskom as a state utility whose fate would become increasingly tied to the ability to deliver affordable, reliable electricity to domestic consumers. 

Free basic services for all

In 1996, the ANC introduced the growth, empowerment and redistribution (Gear) policy, opening the door for privatisation, the proliferation of public-private partnerships, the corporatisation of state-owned enterprises and austerity measures. Gear is credited by many in the Left as undermining the already limited capacity of the state to provide social welfare, particularly in a context where corporate taxation remains pegged at 28%. While the new dispensation set out expansive aspirations for the provision of basic services, the economy suffered from deindustrialisation, financialisation and frequent political instability tied to the intense inequalities reproduced in every aspect of South African life.

Against the backdrop of the shifts introduced by Gear, the ANC government introduced its policy for “free basic services for all” interpreted as the provision of 50kWh of electricity and 6 000 litres of water per month to qualifying households.. The value of 50kWh was recommended through a University of Cape Town study, allegedly providing sufficient energy for lighting, limited water heating and cooking. Free basic electricity (FBE) was then defined in legislation as an opt-in, “self-targeted” approach for providing the service. This was done in favour of a broad-based rollout to avoid leakage of subsidies to non-targeted households. 

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One of the central goals of the allocation was to help substitute the use of wood and paraffin for cooking and lighting in low-income households. The rollout of FBE was contested by the Congress of South African Trade Unions from the onset, with calls to raise the allotment to 100kWh. In a report compiled by environmental justice organisation Earthlife Africa, titled Free Basic Electricity: A Better Life for All, 200kWh was put forward as a suitable figure in 2010. Discrepancies to access of FBE emerged with users supplied from municipalities receiving 50KWh where others directly connected to Eskom have received as much as 100kWh monthly. Access to FBE was also tied to the installation of prepaid electricity meters, which served as the backbone for the overhaul of the procurement system for collecting tariffs for water and electricity. 

Restructuring revenue collection

In the Swartland Municipality, where Chatsworth is located, electricity costs account for just under 25% of a monthly utility bill per household in 2019/20 at R372.93, almost R50 less than the data for similar households under the City of Cape Town Municipality suggests. Following from the National Income Dynamics Coronavirus Rapid Mobile Survey, it is estimated that as many as 3 million South Africans have lost employment and 1.5 million have lost an income as an economic consequence of the responses to the Covid-19 pandemic. The majority of losses disportionately impact casualised, manual labourers and women. These trends are likely affecting communities such as Chatsworth harshly and will continue to erode the capacity of households to pay for electricity and other municipal services, forcing many to rely more on dangerous fuels for heating and lighting. This is over and above the existing crisis facing households locked out of access to the grid through the lack of provision of decent housing. 

Since its widespread implementation, FBE has not been significantly revised and considered in its relationship to energy poverty across the country. Going forward, there needs to be a commitment to radically restructure FBE, which should be financed directly from the fiscus. This will break the toxic cycle of non-payment and municipalities focusing their efforts on revenue collection. This measure will put an end to the cycle of generating municipal debt through guaranteed electricity sales to Eskom paid by the state subsidy. This measure could also mitigate against the drop in domestic demand due to an inability to pay increasing tariffs in the face of large-scale retrenchments as a result of the slowing economy.

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The current system – in which municipalities are forced to generate profit from the provision of basic services to fund their operations, invest in new infrastructure and pay off existing debt – is unsustainable. A restructuring of municipal funding by the state (recouped through a wealth tax) would drastically reduce their dependence on tariffs for revenue collection. This would lower tariffs for working-class residents, over and above an expanded FBE, and allow under-resourced municipalities to perform a more transformative function – creating more avenues for decent jobs and better community control of the economy. 

Tiered tariffs

South Africa’s national electricity scheme for domestic consumers operates from a cross-subsidisation model, in which presumed affluent users are intended to cross subsidise the tariffs of the impoverished. This structure is determined by definitions of different users (domestic, lifeline and home users), which local authorities measure using their own sets of parameters regulated by the National Energy Regulator of South Africa. 

Users on the lifeline tariff also include, upon application, pensioners and users with disabilities, but remain bound to the less than 450kWh consumption limit. The tiered block charges in each category depend on the tariff. For lifeline users, block one is up to 350kWh and block two is between 350 and 450kWh. For domestic and home users, block one is 0 to 600kWh and block two is 600kWh and up. Home users include an additional once-off monthly charge of R148.88, which the municipality claims offsets the low cost of block one for affluent users and contributes to general network costs. 

22 June 2020: Thandi Magxotywa inside her shack home in Stjwetla. Electricity supply is erratic and she has to make use of candles for light and a paraffin stove for warmth in winter. (Photograph by Ihsaan Haffejee)
22 June 2020: Thandi Magxotywa inside her shack home in Stjwetla. Electricity supply is erratic and she has to make use of candles for light and a paraffin stove for warmth in winter. (Photograph by Ihsaan Haffejee)

Using municipal data for 2019/20, the average monthly home user spent R2 163.34 for 952.37kWh, at an effective rate of R2.27/kWh. Domestic users spent R995.65 for 416.42kWh at an effective rate of R2.40. Lifeline users spent R420.32 for 290.33kWh at R1.45. This alarmingly suggests that domestic users, which largely target working class and sections of the middle class in townhouse areas such as in Mitchell’s plain, Athlone, Kensington and Langa, pay higher electricity rates than affluent households in places such Camps Bay, Vredehoek and Pinelands. The concept of the lifeline and domestic use must be reinterpreted through a transparent and consultative process to account for the crisis facing working-class households. 

Meanwhile, affluent households are beginning to capitalise on the dropping costs of solar photovoltaic technology, purchasing rooftop systems that will dramatically reduce their reliance on the national grid. This will result in domestic and lifeline users paying higher rates to cover the potential drop in revenue from the drop in demand from wealthy users. Without delinking the funding of municipalities from the collection of rates and without a means to support reinvestment in infrastructure in under-resourced communities, there remains little hope in a pro-working class path along the journey towards decentralised generation and greater use of renewable energy systems. 

Who bears the burden?

The crisis facing cash-strapped municipalities is also leading to aggressive revenue collection mechanisms. Outstanding municipal arrears are being deducted as a percentage of domestic users’ prepaid electricity token purchases, further reducing the amount of units per rand for working-class users, many of whom have sunk into debt over prior non-payment.

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The tremendous levels of outstanding municipal arrears across the country are a byproduct of a flawed system of generating revenue for municipalities and not the result of individualised instances of bad behaviour from users. Scrapping municipal arrears alongside a wholesale restructuring of municipal funding schemes will mitigate against the dropping demand for electricity stemming from an inability to pay.

It is essential to push the state to make resources available for struggling municipalities to expand infrastructure development and to provide basic service delivery and decent housing for all.

This article forms part of work towards the Tricontinental: Institute for Social Research’s energy project.

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