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‘Drastic action’ needed to save Sol

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2020/21 Adjustment budget: Sol Plaatje Municipality is experiencing serious cash flow challenges

Sol Plaatje executive mayor Patrick Mabilo. Picture: Danie van der Lith

SOL PLAATJE Municipality’s cash flow has been reduced from a healthy three-month reserve to less than two weeks, where the local authority may not be able to pay salaries and bulk costs.

During the tabling of the 2020/21 adjustment budget on Thursday, it was indicated that “drastic action” needs to be taken to preserve liquidity and sustainability if the municipality is to remain a going concern, as it is experiencing serious cash flow challenges.

The municipality stated that it had made payment arrangements with Eskom, which it owes R139 million, and the Department of Human Settlements, Water and Sanitation, which has an outstanding bill of R72 million.

Sol Plaatje executive mayor Patrick Mabilo indicated that the Covid-19 pandemic had placed further strain on the municipality’s finances. “It has exposed the vulnerability of the municipality’s cash position.

“The municipality realises once again the importance of having a minimum of three-months cash coverage, which is a sound directive and required norm from the National Treasury.

“This has been the focus of the municipality for the past few months to ensure that Sol Plaatje recovers completely – to ensure its sustainability and financial viability.”

Mabilo indicated that major challenges that threatened the financial sustainability of the municipality included a lower collection rate and an escalation in outstanding debts, non-payment for services by state organs and excessive overtime expenditure.

He said the high level of unemployment affected the ability of ratepayers to pay for services.

“Critical service delivery challenges include pipe bursts, water leakages, sewage blockages, spillages and leakages, potholes and aging infrastructure,” added Mabilo.

He said the failure of ageing infrastructure, especially water pipes, and sanitation challenges were resulting in overtime payments to employees spiralling above the normal rate.

“Within the water services section there is a capacity challenge as there are pipefitter vacancies and it is currently operating at a minimum capacity of 30 percent. This is exacerbated by the current cash flow constraints in respect of filling of vacancies.”

Mabilo stated that water losses increased from 59.81 percent in 2018/19 to 60.96 percent in 2019/20.

“The high losses are of concern considering that the municipality is losing more than half of the water it purchases before distribution. This problem has not been resolved over the past financial years as it results to ageing water infrastructure.”

He added that the slow progress of infrastructure projects was the result of disputes with contractors over the submission and payment of invoices.

“In some instances, the parts of the invoices were paid while projects were stopped due to non-payment.

“Delays in the supply chain management processes hamper the expenditure of infrastructure grants. Most of the infrastructure projects in the implementation stage are underfunded due to the municipal financial constraints.”

Mabilo said that critical posts, including those of city engineers for roads and stormwater, water and sanitation, as well as general managers for revenue and debt collection, supply chain management and integrated development planning, had to be filled as a matter or urgency.

He indicated that there was a clear turnaround plan to address the outcry from residents.

“We have to be frank and candid in acknowledging the number of challenges recently faced by the municipality, especially water cuts, water disruptions and sometimes complete water outages for days on end.

“Also, the condition of our roads, which are littered with potholes, and then the issues of refuse collection and the general state of filth and decay that has befallen this city, which was once one of the cleanest cities.”

Mabilo acknowledged that the city was experiencing serious service delivery challenges, such as water interruptions, potholes, burst pipes, the filthy CBD, refuse not being collected when it rains and street lights that are not functioning at night.

“We have a clear turnaround plan to address all these service delivery challenges in the short, medium and long term. Consequence management will be effected without any delay.”

Mabilo indicated that revenue collection was poor as some residents, businesses, government departments and state-owned enterprises were not fulfilling their obligations towards the municipality.

“We encourage all recipients of municipal services to continue paying their bills as well as to make arrangements with the municipality when they are in arrears or simply cannot pay.”

He added that they were committed to finding sustainable solutions to strengthen the internal financial standing of the institution.

“Our plans over the last financial year for generating the anticipated income streams are not forthcoming and the budget has taken a downward turn, compelling us to take severe budgetary measures to ensure the municipality remains functional and stable.”

He committed to eradicating fruitless expenditure and mismanagement. “I will continue to work tirelessly to ensure that funds are accounted for to improve services to our people.”

Mabilo said there was an increase of R41.5 million in the total adjustments on revenue for the 2020/21 financial year, which excludes capital transfers.

“The adjusted revenue for 2020/21 amounts to R2.2 billion. The net effect of all adjustments on the operational expenditure budget was an increase of R48.3 million and the adjusted expenditure for 2020/21 amounts to R2.2 billion.”

He added that the net effect on adjustments represented an increase of R990 000.

“The major adjustment is the decrease of the Neighbourhood Development Partnership Grant (NDPG) allocation as well as the Water Services Infrastructure Grant (WSIG) to R12.9 million and the subsequent increase in the Regional Bulk Infrastructure Grant (RBIG) of R4.9 million. The final capital budget as proposed is R231 billion.”

“Debt management remains the biggest challenge with the average outstanding debt over 90 days averaging 87 percent of the total outstanding debt. This has been compounded by a lower collection rate of 76 percent as at December 31 2020.”

Highlights of the adjustment budget:

– The Galeshewe Stormwater project was allocated R7.9 million

– The Lerato Park Electricity project was allocated R10 million

– Funding for the Carters pump station was reduced from R25.9 million to R12.9 million

– The upgrade of gravel roads/paving receiving an additional R6 million

– The resealing of roads receives an additional R2 million

– Homevale Fire station budget was adjusted downwards from R8.4 million to R6.4 million

– An additional R2.5 million was allocated to the budget of computer replacement programme

– The Elevated Water Tanks Covid-19 project was awarded an additional R1.5 million

The Hearlear 11kv switchgear project was reduced from R3 million to R500 000

– The replacement of prepaid budget as adjusted downwards to R1 million

– Stormwater upgrade Galeshewe and electrification of Lerato Park – R15.1 million