Ghost of PEU saddles Tshwane with R4bn Vat bill

Newly elected Tshwane mayor Cilliers Brink will at the next mayoral committee meeting receive the first report explaining why his administration is paying more than R90 million per month to the South African Revenue Service (Sars) for value-added tax (Vat) obligations connected to the disastrous PEU Capital Partners smart meter contract that was cancelled following a court order in 2017.

Brink gave an overview of the actual state of the city’s finances – which he described as “critical but recoverable” – on Monday (17 April).

The City of Tshwane obtained an adverse opinion from Auditor-General Tsakani Maluleke for the 2021/’22 financial year, which resulted in the resignation of Brink’s predecessor Randall Williams in February.

After more than a month of political instability Brink was elected mayor by the DA-led multi-party coalition at the end of March.

The coalition’s margin is however so slim that it was unable to pass an adjustment budget a week ago. Its draft medium-term budget has been adopted.

The city proposes increasing property rates by 5% for the next financial year starting 1 July, refuse collection by 6%, water and sanitation by 9.2%, and electricity by 18%.

Member of the mayoral committee (MMC) for finance Peter Sutton said the increases in water and electricity tariffs are based on increases in bulk purchase tariffs by Eskom and Rand Water. He said the increase in electricity tariffs will be limited to the guideline published by the National Energy Regulator of South Africa (Nersa), which is currently proposing an increase of not more than 15.1%.

PEU matter

Brink was unable to provide details about the PEU Vat bill, explaining that the total liability of R4.7 billion was only discovered last year.

It was never disclosed to the council or the mayoral committee and includes interest and penalties.

The city is currently paying R90 million per month and Sars is not satisfied with the amount.

Brink said it is still unclear to which period the outstanding Vat is linked or whether PEU and its subsidiary TUMS has any liability.

About R2 billion has already been paid, which explains some of the fruitless and wasteful expenditure the auditor-general pointed out.

Brink said an investigation, including a forensic probe, is underway.

He said he wants to see a statement of account and will, if necessary, lodge an intergovernmental dispute against Sars.

He further disclosed that PEU was given access to the city’s bank account to “sweep” it for the money payable to itself.

The line between the municipality and its service provider was completely blurred.

City ‘can recover’

Brink said the city can recover financially, but that this will require hard decisions.

He identified seven factors critical to success:

• Political stability to ensure policies can be adhered to and implemented;
• The appointment of competent senior managers;
• Restoring a competent financial department capable of increasing the collection rate to 93%;
• Available project finance to upgrade infrastructure and reduce technical losses;
• Controlling staff cost and improving productivity;
• Private investment, especially in electricity infrastructure; and
• Selling assets not core to service delivery or where the city is unable to use them productively.

Brink said the city finds itself in its present predicament – where it is unable to pay its current Eskom account on time – due to the impact of Covid-19 restrictions, decisions taken during the period of unlawful administration, excessive salary increases, and load shedding.

Tshwane officials should not expect a salary increase in the coming year because the city will apply for an exemption.

“We will engage the unions, but I must make it clear, we will not act outside of the bargaining agreement,” he said.

City budget

According to Sutton the proposed budget is not fully funded.

National Treasury has given the city three years to move to a funded budget and expects it to cut costs by between 10% and 30% per year.

To that end, the city aims to reduce technical losses of water and electricity by 5% per year.

Sutton disclosed that only 60% of Tshwane’s consumers currently pay their municipal bills on time and vowed to identify problem areas and present proposals to deal with this. These include the WeCanWin rates dispute in the East of Pretoria and the non-payment in Hammanskraal due to resistance linked to service delivery issues.

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Brink said he has serious concerns about National Treasury’s proposal for the reduction of municipal debt to Eskom. This includes the requirement to reduce its free basic services to the indigent, that the city won’t be allowed to enter into any loan agreements, and the risk of losing its licence to distribute electricity if it defaults on the agreement.

Treasury’s requirements for a municipality to have its Eskom debt written off is “very much like a straightjacket,” he said.