‘Bankrupt’ Tshwane Metro plans 50% budget cuts to balance books

The tattered finances of the City of Tshwane have left the metro with no choice but to delay projects, put a pause on awarding new contracts, and cut operational spending by up to half to try and salvage R1 billion of revenue.

Mayor Randall Williams had admitted earlier this year that the city was technically bankrupt, as its liabilities of about R14 billion exceeded its assets by R3 billion.

To make matters worse, the metro was downgraded by rating agency Moody’s two weeks ago, with the international agency citing liquidity concerns. The four-notch downgrade from B1 to Caa2, ranking the metro fourth from the bottom of junk status tiers, also forecasts the metro is likely to end up with more than R1 billion deficit at the end of the year.

City manager instructs departments to cut budgets

In a letter to group heads of departments, acting city manager Mmaseabata Mutlaneng instructed serious budget cuts on operations, projects, and overtime salaries to obtain a R1 billion saving.

“It is therefore proposed that 20% – 50% budget cuts be implemented across the board on general expenditure and contracted services for the 2021/22 medium term revenue and expenditure framework (MTREF) to realise a R1 billion saving. Departments are requested to indicate which operating projects/activities will be delayed or stopped to realise the proposed cuts,” she said in the letter.

She explained that the city’s liquidity issues were worsened by challenges in obtaining long-term external funding for the capital investment programme. Revenue collection was also impacted by the Covid pandemic, with households and businesses failing to pay their accounts.  

Other immediate interventions include putting on hold all supply chain management activities – meaning no contracts would be awarded or signed for the next three months. An exception, however, is made only for services likely to cause health hazards or result in litigation, Mutlaneng explained.

“The impact of the low collection level has meant that a review of the approved budget take place and realign the budget taking into account the current cash flow challenges.”

“This has meant that the anticipated revenue budget targets included in the 2021/22 MTREF and operating performance will be severely affected,” she wrote.

Departments such as energy and electricity are proposed to cut their R17 973 808 total general expenditure by half, to R8 986 904. Water and sanitation expenditure budget was proposed to be reduced to R2 806 418 from R5 612 836.

“The inability to raise the required R1.5 billion in the 2020/21 financial year has created a large liquidity gap which is negatively impacting the liquidity position of the 2021/22 financial year.”

Overtime salaries will also be cut in half, with the energy and electricity department’s overtime salaries being reduced from R43 302 351 to R21 651 175, and water and sanitation overtime salaries also cut down to R13 579 433 from R27 158 867.

Nothing to worry about, says City

Tshwane chief of staff Jordan Griffith said they were trying to “rectify” the R4 billion deficit which they inherited from administrators when they returned into office in November last year.

He said the budget had to be squeezed and some core projects delayed, as revenue collection dropped to 75% under the period the city was placed under administration.

“We have to get revenue collection up to 90%. This requires us to install prepaid metres, implement credit control and be very firm, particularly with large clients such as government departments and other entities that have run up bills that they haven’t paid for. We are taking that very seriously and we are gradually recouping money,” he said.

Despite the operational budget being chopped, Griffiths says this would not impact on service delivery to residents.

“We intend to provide the exact same quality of services which we have always provided… We won’t be compromising on that. We need to make sure that we keep up the quality of service that they are used to,” he said.

But according to the Tshwane ANC, the city has failed to maintain water and electricity infrastructure, repair potholes and collect waste.

“The key reason for the latter outlined failures stem from the inability to pay service providers due to bankruptcy and cash-flow problems that have besieged the city for the last three months.

“The city… has been bankrupt since April 2021 and the downgrade by Moody’s has caused more problems for the city’s treasury. Information we received indicates that there are more downgrades en rout to Tshwane,” said ANC leader Kgosi Maepa.

ALSO READ: City of Tshwane at risk of total collapse

Maepa was speaking at the Wapadrand substation on Tuesday morning following an explosion at the weekend which blacked out large parts of Pretoria East.

The same substation was repaired for around R80 million when it experienced a similar blow in 2018.

The city had said it might take more than 18 months to complete the building of the substation.

rorisangk@citizen.co.za