City of Joburg defends recovery amid cash flow concerns

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JEREMY MAGGS: Now, is the City of Johannesburg really turning a corner? Or is it simply putting a more optimistic frame around a very difficult set of numbers? Let me explain.

The City of Johannesburg says its third quarter results show measurable progress, stronger revenue collection, improved financial indicators and also a credible turnaround. But critics are pointing to weak cash coverage, a huge debtors’ book and ongoing increasing pressure on basic services.

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So let’s test the argument now. I’m in conversation with Tebogo Moraka, who is chief financial officer at the City of Johannesburg. Tebogo, a very warm welcome.

Let me start here, when residents hear or see reports that the city has only five days of cash to cover a 30-day target, why should they not call this a crisis?

TEBOGO MORAKA: Look, I think why it shouldn’t be called a crisis is that the City of Johannesburg continues to meet some of its key obligations. Yes, there is pressure. You would have seen some of our engagements with Eskom in the main.

But I think those, what we have done is to structure them a bit differently with our engagements to Eskom because we know what the key issues are in the entity and how those entities have manifested itself, over the years. And we need to fix that.

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But I can’t run away, Jeremy, when I speak to you [about] the issues that the city faces. You talked about the growing debtors’ book and the fact that collections have remained weak. We’ve seen an increase – and I’m sure we can get into that while we talk – but yes, in my view, slowly but surely, we’ll get there.

Moving from a declining performance over the years, and expecting a quick turnaround is also not realistic, in my view. But we need to at least look at the slow progress that we are getting. Because if there is no progress, whether slow or fast, then we have a serious problem on our hands, and that’s how we choose to look at it.

To say, at least there are measurable improvements, and even though they are not at the level that we would want, but it clearly shows that whatever we are targeting or we are focusing on, we must continue and we must enhance those initiatives as well.

JEREMY MAGGS: Well, let me push you on the debtors’ book sitting at R73.7 billion, let’s call it almost R74 billion, how much of that is realistically collectable in the short to medium term, and how much of it should be written off now as simply unrecoverable?

TEBOGO MORAKA: So that’s a good question. That’s what we are looking at now, because we also know just from analysing data that not all of that debt is recoverable. A big portion of it also grew during the Covid-19 days and is still in our books.

We must be realistic in terms of what’s collectable.

So you would have seen, in the previous two councils, I think the April one approved the debt write-off and in May we went with another addendum to the write-off, so that we it’s not just a blanket write-off.

If you come to us as Jeremy and say, I’ve got arrear debt spanning back years, and I had personal issues that I was dealing with, let’s write it off but I can promise to keep current moving forward.

That’s what we want to enter into. That’s what the addendum was about, to say, let’s have a realistic look at our debtors’ book, who owes us, how much do they owe us and how long has it been, and write off. That’s the work we are doing.

There’s a system that we want to implement, similar to what the South African Revenue Service (Sars) have. We’ve been engaging with them.

I would have loved for that system to be live now, because when we first heard about it and engaged on it through the Presidency, I thought by now it would be live. But it’s not live yet.

But it should be going live in the next month, where we have an in-depth look at the customer who can pay, who can’t pay and why can’t they pay, and how do we move.

Part of the write-off process is already ongoing, Jeremy, because we are realistic that not the entire R71 billion is collectable, but what is collectable must be collected, especially from government and big business.

But also understanding some of the big businesses took a hit during Covid-19. The economic climate is also stagnant, so we are working with them to see what is best for us as the city and obviously our residents and businesses so that we can both thrive.

JEREMY MAGGS: Let me ask you this. If you are suggesting the collections are improving, why then is cash coverage still so weak?

TEBOGO MORAKA: So remember, if you’ve been missing targets over the years, they build up. For example, in March, for the first time in this current financial year, we achieved a collection of around 96%.

In April, due to the holidays, Easter and the like, it dropped down to around 88%, but on average it was still closer to 92%. We saw that in May and June, we carried a collection of at least over 90%.

So what our discussions are internally and with Treasury is to say, let this not be a short-term improvement in collections. Let’s see how we can collect between July and December when we do our mid-term assessments.

Then we can start saying, Jeremy, we are seeing a slow recovery or a sustained recovery in collections. So we’ve changed a few things, even on that front.

JEREMY MAGGS: Collections are all well and good, but in reality, residents don’t experience ratios or percentages. They experience potholes, outages, billing errors, water interruptions. Where is the financial improvement translating into visible service delivery? Because most Johannesburgers would say they’re not seeing it.

TEBOGO MORAKA: Look, in terms of water outages, even power, we must also understand, and I think we’ve been very clear as the city, the backlogs that we face in infrastructure.

If you look at some of the movements that we have done in the current financial year where we have entered an agreement with KfW (Kreditanstalt für Wiederaufbau) for electricity and focusing on our network, we are about to close off an agreement with the IFC (International Finance Corporation) around water.

Those are credible DFIs (development finance institution) that are in the market that we would have engaged on.

They would have looked at the business plans, and they would have done their own due diligence.

I know from a resident point of view, they’ll say, look, you are talking a lot of a whole lot of financial talk. But that will translate into projects on the ground, with those agreements being placed, with the ability of the City of Johannesburg to draw down that money for the improvement.

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We are also quite alive to the fact that our own balance sheet won’t be able to cover the infrastructure refurbishments and improvements that we would need for sustained, excellent service delivery.

That’s why we are also entering the public-private partnership (PPP) market through [GTAC), which is National Treasury. Those processes, we are envisaging to close towards September. Unfortunately, the PPP process takes a long time. I know the minister has tried to really take out the red tape.

But, yeah, Jeremy, if I were to tell the residents, I’m saying we are moving, we are not stagnant. That we are at the final stages of some of the contracts, like IFC. Some of them we have already signed.

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Then we can draw down some of those funds which are envisaged for specialised projects, water reservoirs, so that we don’t drop the water demand, pipe replacement, all those kinds of things.

As the financial head, that’s what my focus is so that the entities can then deliver what they are supposed to deliver.

JEREMY MAGGS: But realistically, it’s going to be many months before residents start to see any kind of improvement. That’s what I’m hearing you say.

TEBOGO MORAKA: It will take time.

JEREMY MAGGS: How much time?

TEBOGO MORAKA: We’ve got a short-, medium- and long-term plan.. If you think about it, the turnaround of load shedding took years. It wasn’t because people were sitting and not doing anything. It was because they had to start with maintenance. They had to refurbish and the like.

We are in a similar process, where I’m talking about raising capital and making sure projects are going live. Making sure that we keep to the timelines of those projects so that we can see sustained service delivery.

I’m talking about the partnerships that we are entering into, especially on the roads front, potholes, traffic lights and the like so that we residents can see improvements

I would say in the short term, in the next month or two months, there will be improvements, even in the next weeks because we already have a service delivery war room.

But ours is to make sure that the future of Johannesburg is solid, its infrastructure has been refurbished, but we also protect the finances of the City of Johannesburg.

JEREMY MAGGS: Thank you very much indeed. Tebogo Moraka, group chief financial officer at the City of Johannesburg.