City of Johannesburg digs into reserve funds as revenue drops R1.4bn
City Power underperforms by 8%
The City of Johannesburg has raided its debt redemption fund as its traditional cash cow, utility City Power, is not raking in projected revenue – putting the city under severe financial pressure.
Sowetan has learnt the City had under collected by R866million on electricity, just in the fourth quarter of the 2016/2017 financial year.
According to municipal documents, which Sowetan has seen, this was an under-performance of 8%, the highest across four main revenue streams – leaving the city with a total of R1.4-billion less revenue for the quarter.
This came as ratepayers were already feeling the impact of higher tariffs, especially with water costs receiving an above inflation increase of 12.2% in the 2017/2018 financial year.
The city also no longer provides free basic water to all residents, with only those registered as indigent residents benefitting from July 1.
Joburg mayor Herman Mashaba said the move to cut free basic water was in line with the National Water Policy and aligned with recommendations from National Treasury.
Johannesburg’s member of the mayoral committee responsible for finance, Dr Rabelani Dagada, said the power utility had had to deal with “situations” that deteriorated its liquidity position. “We have commissioned a forensic investigation to determine the root cause of the liquidity degradation at City Power.”
City Power contributes about 40% of the city’s total revenue.
Dagada said the results of the investigation would lead to the implementation of “administrative controls’’ to improve finances.
The ANC in Johannesburg has raised an alarm, calling on National Treasury and the Gauteng cooperative governance department to put the country’s economic hub on alert before the city goes bankrupt.
ANC’s Geoff Makhubo said the withdrawal of funds from the redemption fund amounted to a breach of promise to investors and rating agencies. Dagada defended the move, saying the city “has the liberty to withdraw from the fund’’.
What is a Debt Redemption Fund?
The Debt Redemption Fund is an emergency fund for the city. It is aimed at helping the city service its loans.
It’s a service that would protect investors against any future possibility of default by the municipality on its debts. The city occasionally makes deposits into the fund when the city is in a healthy financial position.
The City of Johannesburg was the first metro in the country to establish a Debt Redemption Fund, which led to rating agencies affirming its long-term ratings. – Isaac Mahlangu