Joburg targets easy pickings on prepaid as customer debt soars
Prepaid surcharge criticised as lazy fundraising while customer debt reaches R49.650 Billion
The Organisation Undoing Tax Abuse (OUTA) through its initiative JoburgCAN, is raising alarms 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, 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,” says Julia Fish, manager of JoburgCAN. “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 made of 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 and frustrated.
Key Points of Concern:
JoburgCAN has identified several 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 R4.604 billion in just six months and has nearly doubled over the past four years. This includes a substantial R40.309 billion owed by households for utilities such as water, rates, sanitation, and electricity.
Electricity Debt Increase: The electricity debt alone stands at R7.654 billion, 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.
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.
Failure in 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.
Below is an indication of the customer debt problem, based on information in the Section 71 reports.
Below is an extract from the City of Joburg’s Section 71 report for the quarter ending 31 March 2024, showing how total customer debt over three months has risen to R49.650bn. The full report is here.
Julia Fish 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,”
“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,” she added.
Fish also highlights the need for public involvement: “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.”
How Has My Bill Changed?:
JoburgCAN has analysed the impact of the new surcharge on household electricity bills and found that the actual increases are significantly higher than initially reported. For prepaid residents, the City’s 12.7% average increase in electricity prices does not include the new monthly service charge, resulting in a real increase of up to 31% for some users. To see the calculations we used to compile the numbers below, see here.
Our Actions and What You Need to Know:
OUTA 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 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,” 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,” Fish concludes. 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. Ensuring that more residents are registered will not only provide necessary relief to low-income households but will also help address the underlying issues contributing to the City’s growing debt.
More information
A sound clip with comment by Julius Kleynhans, Executive Manager for Local Government at OUTA, is here.
COJ prepaid electricity tariffs FAQs
We looked at three domestic electricity tariffs: the two new prepaid tariffs and the conventional (postpaid) single phase 60A tariff. We calculated a total bill for different levels of usage. If you want to see how we calculated this, our spreadsheet is here.
The City is retaining these fixed charges. Postpaid customers pose a risk to the city because they are in essence given a service and then pay, so consumption and payment can be erratic. In order to make sure that these customers have their meters read, will have available electricity if and when they need it, and to service the mechanism that bill them, there are fees. However, JoburgCAN is calling on the City, the bulk supplier Eskom and Nersa to do proper cost-of-service analysis and ensure all of the expenses they incur to deliver electricity are reflected in the base tariff, relate generally to the use of the service and are not added in as unregulated service charges. We note that the City has increased the fixed monthly charge on postpaid domestic electricity by 30% in two years, which we regard as unreasonable.
Every year the City publishes a draft Integrated Development Plan (IDP) for projects they are embarking on, and a draft budget to allocate funds and update tariffs it will charge its residents or customers. This is tabled in council and then presented to the public in regional meetings. The public has an opportunity to send in submissions and to raise issues with the IDP and budget. In 2024 the IDP/Budget was tabled in April and regional meetings were concluded before the deadline for submissions on 22 April. This was debated in council in May and approved at a second meeting on 22 May. The prepaid charge was included in the draft budget. However, JoburgCAN attended the regional meetings and found that the this new charge was not mentioned in the City’s presentations. JoburgCAN made a written submission to the City on the draft budget, which included protesting against the new prepaid charge. in the final budget, the City lowered the proposed charge from R553.73 to R230 incl VAT after public participation but did not scrap the fee and did not re-engage the public on the changes.
City Power has indicated that any sale of less than R400 will pay a portion of the service charge and receive some units. Any amount over R400 will deduct the full service charge and the remainder will be allocated electricity units. JoburgCAN has asked City Power and the City of Joburg for a copy of this policy and for the exact allocations including VAT, but there has been no response or clarity yet.
The charge applies regardless of consumption, according to City Power. If you do not spend enough to cover the service charge in a calendar month, the cost will roll over and be deducted before any units can be bought in the following months. JoburgCAN has asked to see this policy in writing from City Power and the City of Joburg and received no response yet.
Users on the City of Joburg indigent register do not have to pay the fee. For information on whether you qualify and to apply see here.