Municipalities are too poorly managed at the moment to be reliable electricity distributors, MPs heard on Wednesday.

There was no clear strategy to solve the problem, co-operative governance deputy director Ongama Mhalawe told Parliament's portfolio committees on energy and co-operative governance.

He said municipalities were plagued by a lack of technical capacity, funding gaps, and poor revenue management.

Evidence of this was a collective municipal debt of R76 billion, of which R12.7 billion consisted of unpaid electricity bills.

Mhalawe was speaking on the first day of public hearings on energy distribution industry (EDI) problems.

He said: "If we don't deal with the issues, including governance, we won't be able to deal with electricity distribution."

According to figures from the energy department, municipalities provide electricity to roughly 54 percent of the country's users and had an asset maintenance backlog of R27.4 billion in 2008. The figure has been increasing by R2.5 billion a year and now stood at R35 billion.

National Energy Regulator of SA (Nersa) member Thembani Bukula said municipal distribution chain woes, including licensing breaches, were a function of wider mismanagement.

The regulator proposed ring-fencing funding for asset maintenance.

"They're not very good at building roads or supplying water either," Bukula said.

"There is no reason in principle why municipalities should not distribute electricity, but in the current situation it is not ideal."

Auditor General Terence Nombembe's annual report last week revealed that only 13 of the country's 343 municipalities received clean audits in the past financial year.

Nombembe also faulted municipalities for R11 billion in unauthorised and irregular expenditure.

Eskom's executive head of distribution Ayanda Noah said it was lamentable that wasted state funds could have paid for a third of the maintenance backlog.

"It shows that the money to deal with the backlog is in the system."

She said Eskom believed direct transfers to local government to fix the problem were "a last resort measure only".

Noah called for a "pragmatic approach" to transforming the distribution industry, and commented that after two decades in which dominant thinking demanded it be completely overhauled, this had failed to happen.

"History probably tells us that we don't have the appetite for large-scale restructuring," she concluded.

Presenters made the point that stripping municipalities of their distribution capacity was not a viable option, as proven by the shelving of the regional electricity distributors programme.

It was halted because municipalities would lose a vital revenue stream, often used to cross-subside other services.

Academics from the Cape Peninsula University of Technology said it appeared the energy department was languishing in "analysis mode" when it needed to tackle the problem.

They proposed that Nersa administer the necessary funds for asset maintenance as part of its licensing functions.

The hearings continue until Friday.