Treasury’s R629 million grant reduction hits Tshwane

On the same day Tshwane Mayor Cilliers Brink vowed to get the metro out of its deepening financial crisis by improving collections by R1 billion per month, National Treasury informed the city manager, Johann Mettler, of its intention to cut the payout of conditional grants by R629 million.

That is equal to about a quarter of the city’s capital budget.

In July, the council approved a total budget of R46.9 billion, with R44.5 billion for operating expenses and R2.4 billion for capital projects.

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The drastic move by National Treasury, which will be devastating to the metro’s financial recovery efforts, is motivated by “underperformance/noncompliance” with regard to five conditional grants.

The five grants are for:

• Project preparation
• Urban settlement development
• The upgrading of informal settlements
• Public transport, and
• Neighbourhood development. 

In a letter dated 12 February, National Treasury deputy director-general Malijeng Ngqaleni informs the metro that it has seven days to respond to the notice.

It must provide:

• Reasons why expenditure reported as at 31 December 2023 is below 40%; 
• A progress report against approved projects (a list/names of approved projects); 
• Representation on the cash coverage for grants transferred (liquidity ratio); 
• Representation on the initial cash flow projections against actual performance; 
• A progress report on any approved rollover for the 2022/23 financial year; 
• A commitment that the allocated funds are committed and that they will be fully spent by the end of the financial year, 30 June 2024;  that is, a commitment that the municipality will not request rollover against the funds proposed to be stopped; 
• Representation on all projects awarded after the second quarter of the municipal financial year as at 31 December 2023; 
• Representation on any commitments made against Supply Chain Management Regulation 32 projects in terms of the Supply Chain Management policy and Chapter 11 of the Municipal Finance Management Act (MFMA) and progress made against these projects; 
• A declaration by the municipality on the amount that should be stopped by National Treasury; and 
• An acceleration plan against the 2023/24 approved implementation plan.

City spokesperson Selby Bokaba said on Tuesday afternoon the city is in the process of submitting a detailed motivation to the treasury with a view to presenting an acceleration plan on how the funds will be spent. 

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“We’re hopeful and optimistic that upon presenting the acceleration plan, they will review their intention to withdraw our grant funds.”

Eskom debt

The notice from National Treasury comes on the back of news that Tshwane’s Eskom debt had escalated to almost R3.9 billion at the end of January, and according to the latest set of financial statements submitted to the Auditor-General (AG), its debt to trade creditors escalated to R12.6 billion at the end of June last year, an increase of R1.6 billion compared to the balance a year before.

To add insult to injury, the JSE warned the metro to submit its financial statements for the previous financial year by the end of February or face the suspension of its municipal bonds listed on the exchange.

It is unclear whether this deadline will be met since the statements were only submitted to the AG’s office at the end of November – three months late – and it is unclear whether the audit will be finalised within the next two weeks. 

The suspension of trade in its bonds may constitute an act of default and trigger the immediate call on the bonds and other debt. 

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The city has further been paying off a multi-billion rand tax debt to the South African Revenue Service in crippling monthly payments due to earlier underreporting on value-added tax. 

Metro finances ‘deteriorating’

Robert Cameron-Ellis, chair of the City of Tshwane’s independent audit and performance committee, previously said that the city’s finances are deteriorating, and they know it.

He said they must improve revenue and cut expenses.

This is after the collection rate of consumer debt to the municipality dropped from 95% to 88% in the previous financial year. 

On 12 February, Brink announced “a bold goal for the City’s financial performance”.

He said: “We want to increase revenue and reduce expenditure in the range of R1 billion a month in the next six months.

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“What we have to our advantage is a R23.3 billion debtors’ book that we aim to turn into cash. If a quarter of this debtor’s book is collectable, it is collectable in the next six months.

“If we succeed, we improve our cashflow, our Eskom account, as well as our credibility and creditworthiness. This also buys us the time to fix problems with tariffs and to achieve better value for money in supply chain management.

“If we do not succeed, we will have to make a number of fundamental changes to the way we deliver services by the end of June 2024, when a new budget must be adopted.”

Brink vowed to attend to the whole municipal value chain, including metering and billing and the eradication of illegal connections. The plan further includes reducing bulk expenses, reviewing tariffs to be cost-reflective, and better general cost management. 

Billing outreach

The day after Brink’s announcement, the new MMC for finance, Jacqui Uys, kicked off a Billing Days Outreach Programme to assist ratepayers with queries related to their accounts.

Last year, the city obtained an adverse audit opinion from AG. This largely contributed to the departure of the former mayor, the DA’s Randall Williams.

Brink, who was thereafter elected mayor, has acknowledged the challenge posed by the city’s financial dilemma and has, among other things, refused to implement a salary increase for staff, which resulted in a three-month-long crippling strike. 

The strike ended in November, but negotiations with unions are ongoing. 

This article was republished from Moneyweb. Read the original here