Cash-strapped Tshwane asks National Treasury for help

Moneyweb has learnt that Tshwane city manager Moeketsi Masola has approached National Treasury to help draft a financial recovery plan that might see it restructuring income and expenditure in its current approved budget.

Despite an undertaking to do so, the city failed to respond to an enquiry in this regard.

National Treasury has however confirmed to Moneyweb that the draft plan was set to serve at mayor Solly Msimanga’s Mayoral Committee Lekgotla that took place last week.

The City of Tshwane has, for the past few years, consistently performed very poorly with regard to financial sustainability as measured by Ratings Afrika and when compared to other metros.

Source: Ratings Afrika

Leon Claassen, analyst at Ratings Africa, told Moneyweb yesterday that Tshwane’s latest financial statements show its financial situation remained precarious in the financial year ended June 30 2017. Its liquidity and cash flow management remains under severe pressure, he says.

“Its liquidity shortfall is estimated at R3.5 billion which is larger than the shortfall of R3.1 billion in 2016.” Claassen says the main concern with the weak liquidity is that the city is unable to pay its creditors within the stipulated 30 days.

“Tshwane’s creditors amount to R6.9 million and include service providers such as Eskom, Rand Water and many small businesses than are normally dependent on timeous receipt of the payment for the services rendered.”

Claassen says Tshwane’s operating performance improved in 2017 with the operating loss of R2.4 billion in 2016 that has been turned into a surplus of R400 million. This is mainly because operating expenses have remained flat while the revenue increased by some R2.8 billion, Claassen says.

To improve its financial situation, Tshwane will have to further improve its operating performance through a reduction in expenses and faster growth in revenue.  The larger surplus that would be realised will enable the metro to change its liquidity shortfall into a surplus over the medium term, he says.

It however remains to be seen how that would affect service delivery in the short term.

National Treasury told Moneyweb that the financial recovery plan is still in draft form. It has been developed by the Municipal Finance Recovery Services within National Treasury together with Masola’s office and Tshwane chief financial officer, Omar Banda.

It was presented to the senior management of Tshwane in order for it to be discussed at at the Mayoral Committee Lekgotla, held last week, National Treasury stated.

Municipal expert Advocate Werner Zybrands told Moneyweb that the Municipal Finance Management Act (MFMA) provides for National Treasury to intervene in financially-troubled municipalities or assist at their request.

He says it was the responsible approach for the City of Tshwane to approach National Treasury pro-actively for assistance.

The current DA administration has been vocal about the financial problems it inherited from the previous ANC administration. It has however repeatedly denied speculation that the city might be placed under administration.

The drain on the city’s finances from the controversial smart metering contract with PEU Capital Partners is on-going as the court order that set the unlawful contract aside, has been suspended pending a ruling on a just and equitable remedy.

The city council has not yet been informed about Masola’s request for assistance.

Zybrands says any changes to the current approved budget would however require council approval.

He says in terms of the MFMA the team implementing the financial recovery plan would have wide powers.

He says there is not much a municipality can do about its income. National Treasury has told Moneyweb that it will not grant the city any more money and municipalities are barred from implementing new or higher tariffs in the middle of a financial year.

According to Zybrands the majority of a municipality’s expenditure is also fixed. The only place meaningful saving can be made is on staff cost, which is usually about a third of total expenses.

Zybrands says in terms of the Municipal Systems Act a municipality’s staff structure has to be approved by council and has to be funded. In terms of a bargaining council agreement, all such posts should be filled.

He said in the circumstances of a financial recovery plan such a bargaining council agreement might be suspended to allow Tshwane not to fill vacancies and thereby save on salaries.

Zybrands says another option would be for Tshwane to restructure its creditors. In an extreme situation the MFMA provides for a municipality to obtain a court order to freeze creditors for 90 days.

The city will be required to publish a notice to stakeholders to comment on the financial recovery plan before it can be finalised. It would also need to inform local government association Salga, trade unions and its creditors and provide detail of the plan to them on request.

Once adopted, the city will be required to give regular feedback to National Treasury about the implementation of the plan.

According to National Treasury the Gauteng Provincial Treasury is aware of the support it is providing to the City of Tshwane. As a non-delegated municipality in terms of the MFMA, National Treasury, however, has direct oversight over the city. 

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