Despite Buffalo City Metro having a financial recovery plan in place, and mayor Princess Faku taking to national TV on the eve of the general election to boast of the city’s improved financial position, the metro seems to have dived back into financial difficulty.
New concerns were raised on Wednesday by the city’s acting chief financial officer, Vincent Pillay, just weeks after the council approved a R12bn budget for the 2024/2025 financial year, including substantial tariff hikes for electricity and other services.
In a letter to city bosses, dated July 10 and seen by the Dispatch, Pillay raised concerns about BCM’s finances, which he said signalled a “negative decline”, adding that “creditors’ payments exceed available cash”.
To improve the situation, Pillay said, city authorities should pin their hopes on ratepayers buying in to the recently approved increased tariffs.
In May, Faku told eNCA that the city’s long-documented financial woes were in the past, with its recovery plan bearing fruit, resulting in the metro having about R1bn in its reserves.
However, in his letter, Pillay said the metro’s “cash coverage” was below the norm.
“Buffalo City’s finances have signalled a negative decline towards year-end 2024 and an increase in accruals, meaning creditors’ payments exceed available cash.
“This also means the cash coverage of the city is below the norm.
“Considering the above indicators, together with the resistance of ratepayers to commit to the new tariff hikes, pose a high risk to our collection rate for the first quarter of 2025.
“The city is engaging in a vigorous communication, education and an awareness drive to source buy-in from consumers to understand the revised tariff structure, in an aim to promote revenue within the city.
“Until such time that the above is addressed, all requests for quotations and orders will not be entertained unless it’s an emergency and compliance-related.”
Requests for quotations refer to informal tenders of less than R750,000.
Pillay further instructed his colleagues that all requests for emergency and compliance procurement be sent to his office for approval.
This was necessary to ensure the city met all its statutory payments for the first quarter of 2025.
He said that “an assessment shall be made thereafter to open the full procurement”.
It was reported in November that city officials had been forced to slash staff overtime hours, vehicle hire and fleet management costs to slow the municipality’s slide into financial ruin.
During her TV interview, Faku said the metro was reversing its fortunes, thanks to the recovery plan introduced in late 2023.
“Though we had a financial crisis when we came in, I can tell you now we are sitting on almost R1bn in reserves in the bank, meaning that our financial recovery plan is doing well and we are improving as a city.
“This is because I have a strong team which is standing behind me, making sure we practise good governance.”
However, this claim was slammed by some councillors, including ANC members, who argued that the mayor was misleading communities with her “reckless comments” which were not a true reflection of the city’s financial situation.
Pillay could not be reached for comment on Thursday but city spokesperson Samkelo Ngwenya said there was no reason to panic.
Referring to Pillay’s letter, Ngwenya said: “This is an internal document aimed at enforcing financial discipline and compliance as part of the principles of the financial recovery plan.
“The metro is not in panic mode. In fact, the collection rate as at June 30 2024, showed slight improvements of 71.29%.
“The metro is implementing full credit control action and debt collection.
“This includes applying all the processes of revenue collection, from reminders to issuing account statements, pre-termination notices, partial blocking and disconnections.
“Every financial year after July, when new tariff structures are implemented, there is a tendency for a dip in most municipalities’ [finances] and we are no different, so this is just a precautionary measure.
“It is to also manage our cash flow due to over 50% in Eskom’s winter tariffs which are not borne by the BCM consumers.”
Though the metro’s new tariff increases triggered an outcry, with some ratepayers calling for them to be scrapped, Ngwenya said the issue “has not arisen as there are cushions and positive measures to ensure that the new tariff increases are applied in a progressive manner”.
DA councillor Geoff Walton said Pillay’s memorandum ordering the restriction of non-critical spending came as no surprise to the party.
“We warned the council back in April that our financial projections indicated a rapidly declining cash flow.
“This would inevitably lead to a zero cost coverage ratio by year-end, especially considering significant cash outflows expected in June.
“We emphasised the importance of expenditure control at that time, a consistent message for at least the past two years.
“Unfortunately, these warnings went unheeded.”
Walton said the significant amount of outstanding debt was also a concern.
“Aside from the R84m due to known trade creditors, an additional R50m in liabilities was not even reflected in the budget.”
EFF councillor Siya Rumbu said: “We have noted this letter with great concern and as a result written to the mayoral committee member responsible for finance, asking whether this could be the reason for the hasty adoption of the budget, so that we did not get enough time to scrutinise and analyse these shortcomings.”
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