Joburg’s cash crisis threatens essential services

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JEREMY MAGGS: Now, you’ll know that Johannesburg’s mayor (Dada Morero) is insisting, and insisting fairly emphatically, that the city’s finances are under control. But I think the numbers suggest a far more precarious picture.

The city reportedly has just 12 days of cash available. It owes billions to bulk suppliers and contractors and is also delaying critical water and electricity projects.

One senses all of this is coming to a head, and fairly quickly. So is the new budget a credible recovery plan, the one that we’ve heard of, or simply postponing the crisis?

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Welcome back to the programme, Julia Fish, the executive director of JoburgCAN, an entity billing itself as a community network. Julia, welcome. Johannesburg is now officially in a financial crisis, whatever the mayor may say. What’s the clearest single piece of evidence that supports that conclusion?

JULIA FISH: The clearest single piece of evidence that supports that conclusion is the fact that they simply can’t pay their bills. We’re seeing this throughout all the entities, that each one of them has a massive backlog in not only contractor accounts, but also bulk supply, as you mentioned.

JEREMY MAGGS: So the city has 12 days of cash available. If I’ve read this correctly, that is unusually dangerous for a municipality of this size. Julia, what does it mean?

JULIA FISH: What that means is they only have enough to cover the absolute basics. So when revenue comes in from the community paying for water or electricity or their rates and taxes, they have to pay salaries first according to labour law. So that’s 30% gone.

Then they’re having to dish that out to the different entities, who they are heavily cross-subsidising, and they’re unable to actually pay all of their bills.

So, as we say, they’re actually playing Russian roulette as to whose bill gets picked out of the pot and paid on a month-to-month basis.

JEREMY MAGGS: So how are they playing that Russian roulette? What goes into the decision as to who gets paid, when, and where?

JULIA FISH: Our understanding is that it’s actually quite serious, that there are depot managers or people within middle management who these contractors, out of desperation, are approaching and slipping a couple of brown envelopes their way to try and get their invoice pushed to the top.

And because of that, there’s no understanding of exactly who’s going to get paid, why they’re going to get paid, or which ones get paid on a basis, which means that only 35% of the city’s invoices get paid within a 30-day period, which is financial norms.

JEREMY MAGGS: So this is not sustainable, obviously. How close to complete collapse are we? And what would that look like if it were to happen?

JULIA FISH: Some would argue that we’re already in complete collapse. If you look at the timeline of what’s happened in June of this [year], we already saw frontline services such as JMPD (Johannesburg Metropolitan Police Department) fleets grounded because of a disagreement with Afrirent, which is the fleet services team.

They also have the fleet for Pikitup, and we’re seeing massive non-collection of refuse across the city because that fleet has been grounded.

The JRA’s (Johannesburg Roads Agency) fleet didn’t have enough money to pay for their fuel, so they’re not able to go out and fill potholes. That money suddenly appeared and their cards were unfrozen. But then we had the sheriff showing up at Thuso House, which is where the entire finance system sits.

That’s where the employees of the accounting structure operate from, and their furniture and assets were attached. That’s been returned. They found the money to deal with that lease agreement issue.

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But now we’re also seeing that Eskom has issued a notice to potentially shut down the power supply to the City of Joburg because we haven’t paid our bill.

When Treasury retracted the equitable share grant, that was the only cash in hand, because it’s a non-conditional grant, technically, the city can do this. That was the only cash that they had in hand to actually pay Rand Water and Eskom.

So we’re at a moment when we’re about to have another round of water disruptions due to maintenance.

But many suburbs across the city are already seeing lower flows, and it’s suspected that because we are unable to pay our bulk supply, they’re actually throttling the City of Joburg right now. So there’s clear evidence that there are massive problems already.

JEREMY MAGGS: As a result of that, if this is financial Russian roulette, as you call it, is there an essential service that is most at risk right now as we have this conversation, within the next couple of days, perhaps?

JULIA FISH: We’re already in that position. So where I sit in Johannesburg this morning talking to you, I don’t have power. City Power is at absolute breaking point. They have a massive overdraft, we’re talking R22 million, and from that, there are interest payments, there are a whole bunch of other things.

So in the middle of winter, in what is a very sensitive time for people, there could be no power, and Eskom is threatening to shut off the whole city unless we make serious payments. Also, as residents start making comments as to how this will affect us, the power could go off on 28 July.

JEREMY MAGGS: Julia, the approval of these turnaround plans for Johannesburg Water and City Power, they hold no currency at all, I would suspect you’d say.

JULIA FISH: The turnaround plans are actually required in terms of the Operation Vulindlela National Treasury project, called the Metro Trading Services Reforms, which is supposed to ring-fence the money so that they can have a clear line of governance over their own structures.

Technically, Joburg Water is supposed to be ring-fenced from 1 July with the new budget and get given the R7 billion a year that they actually bill, and that will go some way to fixing things.

But these turnaround strategies, as they’ve written them, are not being funded.

So they’re very honest, they’re very workable, and they will come up with great solutions. But those were passed two years ago in the case of those two entities. But when you look at the budget that they’re being allocated year on year, it’s not enough.

So what they’re getting is significantly short of the operations budget that they need at City Power, though they have been given a significantly higher capex (capital expenditure) budget this year, which is for new projects and new substations and the like.

But Joburg Water is only getting funded half of what it needs, according to the turnaround strategy, to make any real difference.

Even though we’ve got these honest plans and things are going to be ring-fenced, there still is just not enough money to catch up on the massive backlog of a lack of maintenance and burgeoning contracts and staff costs.

JEREMY MAGGS: If that’s the case, if revenue is insufficient, what gives first? Is it salaries, political programmes, capital projects, outside contractors? Where do you start looking?

JULIA FISH: What’s giving way first are the nice-to-haves, which is necessary. We can’t necessarily expand the infrastructure to new areas like they’re building in Southern Farms. So those kinds of projects have to step back.

But what’s also falling by the wayside are the really necessary projects.

There are several City Power projects, including the upgrading of Eikenhof, which is the major water pumping system that feeds most of the west side of Johannesburg. If that goes down, people don’t have water. So the upgrading of that power infrastructure has been delayed.

We’re also seeing Hurst Hill, which is also part of that Eikenhof structure, that reservoir is being delayed. City Power have actually had to pull back the security they have for their infrastructure because they don’t have money.

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So it’s actually essential services that are losing the funding when it should be austerity at management level, where we’re not paying the CEOs above what the city manager, who’s supposed to oversee them, is.

Also, extending how many senior managers we have, we’re pushing more money into salaries where it really shouldn’t go, and we’re cutting it from essential services, and it’s very worrying.

JEREMY MAGGS: Julia Fish is the executive director of the organisation JoburgCAN. Thank you very much.