How Do We Determine What is an Affordable Rate?

Bitou Corruption Report – A Follow Up Letter
April 14, 2020
Unlawful Overpayment of Remuneration of Senior Municipal Officials
April 18, 2020

How Do We Determine What is an Affordable Rate?

Bitou Municipality announced on 26 March that they “resolved to unblock all prepaid electricity meters” during the lockdown.  The Plett Ratepayers’ queried this and received a response from CFO Mkhefa on 3 April that it does not include the practice of shortchanging prepaid electricity consumers on their purchases. Since Mr. Mkhefa’s letter was marked Personal, I will not attach it, but he also said the “notion that our tariffs are high cannot be proven and I will encourage that you do the study to that effect.” 

The Constitution says we are all entitled to services at an affordable rate. Therefore, we sent the following letter in return to Bitou CFO Mkhefa and will reprint it here so the public can better understand our position.   We have also applied to the court for an interdict to have Bitou stop this un-Constitutional practice.  

Dear CFO Mkhefa,

We now understand that your announcement had nothing to do with short changing prepaid electricity purchases to offset other services in arrears.  Be that as it may, we welcome the opportunity to explain our position in more detail and perhaps in the process you can share some information which could help us come to a better understanding and we can work together to make that better life a reality.

It is our understanding that the practice of short changing a prepaid electricity purchaser by 50% in order to offset his/her other accounts does not apply to indigents.  Indigents earn a combined household income of R3,500 pa, and as you say, their debt is written off once they are registered.  Bitou is reimbursed from Treasury under the Equitable Share program.

Our concern arises from the group who earn a bit more than R3500 and do not qualify, nor can they afford to pay the significant percentage of their income to service charges. They are unable to keep up, thus falling deeper and deeper into debt.

Bitou’s debt appears to be increasing at a rate of R10-20 million per month, with the majority being household debt arising out of the townships.  It appears that Bitou’s debt collection policy of short changing prepaid electricity purchases is barely making a dent, and only causing unrest and protests.

Would a partial solution be to increase the number of registered indigents in order to increase the Equitable Share reimbursement?  The 2018/19 Bitou Annual Report shows that the number of registered indigent households decreased from 4,381 in 2017/18 to 1,891 in 2018/19.  Less than half!  Yet the population in Bitou has increased, unemployment is rising, so why hasn’t the number of registered indigents?  Is the municipality doing its job to sign them up and apply for grants?

What is of real and immediate concern to us is the application of the following clauses of the Credit Control Debt Collection Policy to poor people other than those registered as indigent. I paste same below for ease of reference.

7.5.2      The municipality must at its discretion allocate a payment between service debts – a debtor in arrears may not specify that the payment must be used for a specific part of his/her account;

7.4.10   If an account is not paid by the due date interest will be charged one month from Billing date. Interest will be equivalent to a full month from this date for each month, or part thereof that the account is overdue.

7.4.11    The municipality supports the principle of a consolidated account and reserve the right to disconnect/restrict/block any service with regards to non-payment of the consolidated account.

8.9.        The municipality shall use the pre-paid meter system:-
(a)    To tie the provision of electricity to a pre-paid system as pre-payment for electrical units; and
(b)    As a payment with regard to bad debts consisting of accumulated municipal taxes and other levies, tariffs and fees with regard to services such as water, refuse removal, sanitation and sewerage removal, at the following ratios:

Debt Aging Ratio
60 days 50% to be allocated to repay outstanding debt

90 days 60% to be allocated to repay outstanding debt
120 days 70% to be allocated to repay outstanding debt
150 days or more 80% to be allocated to repay outstanding debt.

Without going into any detail, we are advised by senior counsel that 7.5.2, 7.4.11 and most especially 8.9.1 of the policy are unlawful and unConstitutional and as you know, we have brought an urgent application to stop this unlawfulness.

We eagerly accept your offer to allow us to conduct a cost accounting study to establish the actual cost of tariffs.

One of the reasons we believe Bitou tariffs are too high is the wide disparity between Bitou and Knysna tariffs.

Bitou’s sewerage tariff is R6,056 pa, compared to Knysna’s tariff of R1,837 pa or 3.3 times that of Knysna.

Bitou’s refuse removal costs R3,481 pa compared to Knysna’s tariff of R1,238 pa or 2.8 times that of Knysna.

Combined, that amounts to R 9,537 pa compared to Knysna’s  R 3,075 for Knysna, or 3.1 times that of Knysna.

A small discrepancy is to be expected but a three-fold price difference probably means that the services are not being provided efficiently or the tariffs are simply set too high. Either way it calls for immediate and serious intervention.

These abnormally high tariffs apply to the poor and as we see has the effect of quickly submerging them in unmanageable levels of debt while receiving nothing in return for the accumulating debt.

The implications of these unrealistically high tariffs on the low income earner, is devastating.

Let us look at the example of a poor household earning R 48 000 pa.

In Knysna the tariffs will amount to 6.4% of the R48k pa income.

In Bitou the tariffs will amount to 20% of the R48k pa income.

By contrast, for a rich person such as yourself earning R1.1m per annum, the Bitou tariff amounts to just 0.86% of your annual income, so whether or not the tariffs are reasonable or three times what they should be has zero effect on a rich person such as you.

If one applied that percentage to a poor person’s R48k per annum, it would amount to R416 pa, a far more manageable amount.

If, for perspective again, one applies that percentage to your R1.1m salary, the Bitou tariff would amount to R220k per annum and the Knysna tariff to R70k. Ouch! Not even a rich man such as yourself is going to be happy with paying an extra R150 000 for the same thing as others are getting.

These tariffs are not elective, and the consumer has no choice but to stay with Bitou as its supplier. Under these circumstances it is imperative that URGENT attention be paid to the question of determining and implementing realistic tariffs.

Which eventually brings us to the matter of “short-changing” that is to say, treat unfairly by withholding something of value.

Let us take the example of a poor household with an annual income of R 48k. They cannot afford to pay out 20% of their monthly income for services so their municipal debt increases at a rate of R800 every month. Let us assume that they spend 12.5% or R 500 of their income on electricity.

The municipality now applies clause 8.9.1.

8.9.1      The municipality shall use the pre-paid meter system:-
(b)    As a payment with regard to bad debts consisting of accumulated municipal taxes and other levies, tariffs and fees with regard to services such as water, refuse removal, sanitation and sewerage removal, at the following ratios:

Debt Aging Ratio

60 days 50% to be allocated to repay outstanding debt (R250/R500)

90 days 60% to be allocated to repay outstanding debt (R 300/R500)
120 days 70% to be allocated to repay outstanding debt (R350/R500)
150 days or more 80% to be allocated to repay outstanding debt (R400/R500)

Without going any further with the calculation it is abundantly clear that this so called “auxiliary measure” (auxiliary: providing supplementary or additional help and support) is nothing of the sort, but in reality is a draconian debt trap that ensnares the poor and impoverishes them to the extent that within a matter of months they will never be able to recover and are condemned to paying 2.66 times what those who can afford to pay the high tariffs pay for theirs.

It is draconian and simply unacceptable under our Constitution for a municipality to do what is being done.

We are very much aware that the municipality’s survival depends on the efficient collection of debts for services provided. It goes without saying that that is but one small portion of the bigger picture which requires the efficient and cost effective provision of services, the total elimination of fruitless and wasteful expenditure and as a basic premise paying heed to and following the guidelines provided by National Treasury from time to time.  In short, running a tight ship.

You are correct when you say that we will object to tariff increases for property rates when the increases are not justified and raised only to fund waste and inefficiency that can and must be addressed.

You say of our claim of high tariffs “it cannot be proven,” so will you please provide us with the cost break-down for these services? You are required to do zero-based budgeting, yet we receive a percentage increase year after year with no explanation of how the tariff relates to the actual cost of performing these services.  Surely the exercise will make it evident where you can cut or become more efficient.

Padding tariffs charged to poor households in order to pay for frivolous expenses such as drivers, bodyguards, private protection, parties, festivals, salaries in excess of allowable limits, unnecessary political appointees, and the mayor’s candy jar of Grants-in-Aid, is not acceptable.   If you remove all the non-essential expenditures and focus on providing the residents with good service delivery, you could reduce tariffs for all.  And then make sure those who can afford to pay do pay.

I hope this gives you a better understanding of our concerns with regard to suspiciously high tariffs,  short changing and the deleterious affect the council’s policy and its implementation has on the poor and vulnerable in our society.

As our papers illustrate we are determined to make sure that these issues are properly addressed and we thank you once again for your kind offer to allow us to make a costing study of the tariffs. We will be in contact soon.

Regards,

Peter Gaylard

Chairman


30 March 2020

Municipal Manager

Bitou Municipality

Dear Sir

The Facebook page of the Bitou Municipality has the following post:

‘BITOU COUNCIL RESOLVES ON RELIEF FOR BLOCKED PREPAID ELECTRICITY USERS

The Bitou Council, at an Ordinary Council meeting held on the 25 March 2020,

resolved to unblock all prepaid electricity meters. No meters shall be blocked

for a period of 30 days. This is a relief provided to residents during the

National 21-day Lockdown as announced by the President.

Issued by Communications Department on the 26 March 2020 at 13h20’

Please confirm that this is accurate.

In addition, please tell us whether this covers the under supply of electricity when full payment is tendered. In this regard, we refer to our previous correspondence with you and the application papers.

Finally please tell us whether, after the thirty day moratorium to which you refer, you will be continuing the practice of short-changing on electricity referred to above.

You know that we have brought application to interdict you from continuing with the practice in question. We have no intention of terminating these proceedings until we know that the practice has been terminated and an appropriate order of court has been made on the relief, including costs, being claimed.

Peter Gaylard

Chairman

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