Emfuleni plan is no solution

The Organisation Undoing Tax Abuse (OUTA) is concerned that the Financial Recovery Plan for the dysfunctional Emfuleni Local Municipality has a lot of information but no clear plan.

The plan is so inadequate that it is set up to fail.

This week OUTA made a written submission to the Municipal Financial Recovery Service (MFRS) unit about its proposed Financial Recovery Plan for Emfuleni. The MFRS is the National Treasury unit responsible for preparing such a plan when a province intervenes in a dysfunctional municipality and drew up the Emfuleni plan following the Gauteng intervention.

What’s missing from the plan

There is no clear implementation plan.

“An undertaking of such magnitude can only be successfully executed with skilled project management, planning and execution,” says Makhosi Khoza, OUTA’s Deputy CEO: Local Government.

Michael Holenstein, Manager at the OUTA Local Government division, says the project management plan should be detailed and include project managers. “This plan should have specific actions and milestones focussed on fixing the municipality and settling its debts.”

Here are some more omissions:

- The plan proposes borrowing R900m but doesn’t provide a funding model or explain how this would be spent.

- It says municipal infrastructure is beyond restoration but does not provide a strategy for addressing this.

- It does not adequately address the municipality’s outstanding debts.

- It does not address the staffing costs and vacancy crisis.

- It does not address the inadequate collection rate and poor billing system.

- It was not based on audited financial statements.

Emfuleni’s disastrous finances

To understand Emfuleni’s collapse, OUTA investigated five years of Emfuleni’s finances – using public documents – and found a substantial mess.

There were significant differences in the audited budgets and audited financial statements.

The municipality incurred losses every year for the past five years and has a huge operating deficit of R910m.

Liabilities exceed assets by R1.35bn.

The 54% collection rate means that Emfuleni collects only R3bn of its R5.5bn budget.

Years of failed collections mean R4.1bn of the uncollected debt is now classified as impaired (unrecoverable) but even that was wrongly understated by R1.1bn.

There was R642m in unauthorised expenditure, more than half of it disappearing as cash payments.

Emfuleni owes Eskom R606m and Rand Water R419m, but at least 40% of the water and electricity purchased is lost due to poor infrastructure and theft.

There is a high vacancy rate, an absence of appropriately skilled staff and excessive salaries paid to unqualified or inept staff. The municipal manager is paid R2.2m and heads of department upwards of R1.6m.

“They need to cut the budget and make it realistic. Look at how much you have, what you can spend and what is most important to survive,” says Holenstein.

OUTA’s recommendations:

- Compile a systematic project plan with clear deliverables and timelines.

- Dissolve the council and elect a new one, which should develop a new Integrated Development Plan and realistic budget.

- External funding from National Treasury is needed rather than more unaffordable loans.

- Non-essential assets should be sold to help pay debts.

- Emfuleni debts to Eskom and Rand Water which are older than 90 days should be written off.

- All consumers of Emfuleni services must have meters, the billing system must have integrity and all consumers should pay their current accounts within 15 days.

- Staffing needs reassessing – particularly in the mayor’s office which has 60 staff – with a view to an affordable staff funded by reasonably projected revenue.

Who’s to blame?

OUTA believes that the provincial and national Treasuries and departments of Cooperative Governance share the blame for Emfuleni’s collapse due to their failure to honour their oversight obligations.

“Municipalities submit their monthly and quarterly financial reports to these departments to allow for oversight. Intervention to hold officials to account should have occurred years ago,” says Holenstein.

“We cannot help but ask the question: how did we get here? There was no political monitoring, no oversight and the non-performance resulted in zero repercussions. Undue political influence has led to this decay,” says Khoza.

“Local government is politicised and it should not be. We see cadre deployment in these municipalities which brings very little value to our towns. They ignore skilled workers as the space is filled by political appointments instead of suitably qualified public servants."

OUTA's submission on the Emfuleni Financial Recovery Plan is here.

OUTA's submission on Emfuleni's finances is here.