City of Tshwane is sinking deeper into debt

The City of Tshwane is sinking deeper into debt and the amount it owes Eskom has ballooned from R1.1 billion in September to almost R3.9 billion at the end of January.

The last payment it made to Eskom was a partial payment of R400 million in September.

The city’s purse has since been so empty that it has failed to pay Eskom a single cent, according to information provided by the administration.

Arrear and current amounts owing to Eskom as at 31 January 2024

From this and the annual financial statements submitted to the Auditor-General (AG), it is clear that the city is “stretching” its payments to those it does business with as it has virtually run out of cash.

Eskom is being used as a “bank”, with the city “borrowing” money from it to close other gaps. Even so, on 30 June the city owed its trade creditors R12.6 billion, an increase of R1.6 billion compared to the balance a year before.

That means it is becoming riskier to do business with the city and service providers may find themselves waiting for payment.

The City of Tshwane submitted its annual financial statements for the year ended 30 June to the AG at the end of November – three months after the deadline.

Moneyweb obtained a copy from Republican Conference of Tshwane councillor Lex Middelberg.

Because of the late submission, the AG’s audit finding is only expected in March. Other municipalities that stuck to the deadline announced their audit outcomes at their January council meetings.

‘Tshwane bonds may be suspended’ – JSE

The delay in finalising the statements has already prompted the JSE to issue a warning, which it did last week, that trade in the Tshwane bonds may be suspended if they are still outstanding by the end of February, which is a month after the original deadline.

Such a step will further impact investor confidence and make it increasingly difficult for the city to obtain loans to supplement its dwindling income.

Last year the AG shocked the city’s governing multi-party coalition with an adverse opinion of its financial statements, which played a key role in the departure of the previous mayor, Randall Williams of the DA. He was replaced by Cilliers Brink, who will be expected to bring about some improvement.

Read:
Tshwane’s mayor resigns
Myth busted: ‘No one person can be blamed for Tshwane’s adverse audit opinion’
City of Tshwane no longer a going concern – AG

After the resignation last month of Yolanda Duvenhage, a DA ward councillor from Pretoria North, the multi-party coalition has a majority of only two seats in the council, and a bad audit outcome could be devastating.

The city’s audit and performance committee (APC), which provides independent oversight by experts in the audit field, recommended that the latest set of statements be held back so the information could be verified.

It is the second year in a row the APC has made such a recommendation, but in 2023 Williams and his administration ignored the warning and went ahead with the submission. That resulted in the AG’s adverse opinion.

Robert Cameron-Ellis, chair of the APC, said the numbers were verified again and again and he hopes for an improved audit report. He says the AG pointed to three areas of concern last year and two of these were corrected: the cash flow statement and the oustanding amounts owed to creditors.

Regarding the third – the valuation of property, plant and equipment – a lot of work has been done, but council needs more time to provide credible valuations. Cameron-Ellis expects a qualification relating to this aspect.

Middelberg, however, is sceptical and expects an even worse audit outcome.

Dismal outlook

Cameron-Ellis says the City of Tshwane’s finances are deteriorating and they know it. The revenue is lower than anticipated. Residents are battling to pay their bills, but the city must improve collections and cut expenses at the same time.

“It’s like someone who used to earn a salary of R100 000 per month with expenses of R90 000,” he says, adding that now their income has decreased to R80 000 while their expenses are unchanged.

Middelberg points out that the collection rate has dropped from 95% in the previous financial year to 88%. He cautions that this cannot simply be cured by increasing tariffs.

It is at a point where tariffs are already unaffordable and a further increase will result in a decrease in income, he says.

Read: Here’s how much City of Tshwane’s striking workers get paid

The situation is so dire that even if the city was to sell all its current assets, totalling R8.1 billion, it would not have enough money to pay even half of its current liabilities of R19.3 billion.

Current assets are those that can be liquidated within a 12-month period and current liabilities are those payable within the same period. Current assets should exceed current liabilities.

Cameron-Ellis says the council simply does not have enough cash to pay all its bills within 30 days, as is required by law. It is currently closely managing the way it makes payments, but he acknowledges that doing business with the city is becoming increasingly risky.

According to information submitted to National Treasury, the city owed Eskom R1.6 billion at 30 June 2023 and Rand Water R860 million. A mere 53% of its trade creditors were being paid within the prescribed 30 days. By September this had deteriorated to 43%.