MOSSEL BAY NEWS - On 1 February, in a media statement, the ACDP expressed its concern about the “liquidity shortfall” of the Mossel Bay Municipality.
The municipality issued a statement this week saying there was “no reason for concern”.
It confirmed a liquidity deficit of R90 million was recorded.
According to the ACDP a liquidity shortfall is negative because it means that the municipality does not have enough cash or easily accessible assets to meet its short-term obligations.
The ACDP believes factors that have contributed to the shortfall includes:
1. Expenditure on non-essential items and non-service delivery-related expenditure.
2. Indiscriminate writing off of bad debt.
3. Sale of land to developers at greatly discounted prices. Land sales are an important revenue driver for municipalities.
4. Not prosecuting electricity thieves and vandals.
The municipality’s acting chief financial officer, Hennie Le Roux responded to each of the ACDP’s concerns as follows:
1. All expenditure complies with legislative principles and is aligned with the council-approved budget. During the approval of a budget, the priorities set by council are addressed. All programmes are either in support of end services delivered to the public or are directly allocated to the delivery of a specific service. All services rendered are geared towards achieving the vision and goals set by the council.
2. Debt is most certainly not written off indiscriminately, but in fact done to assist and accommodate those residents who have fallen on hard times, for example, writing off indigent debt.
All debt written off complies with predetermined rules and guidelines set out in the Customer Care, Credit Control, Debt Collection, Indigent and Tampering Policy, approved by council.
Estimations for these write-offs are included in the budget of the municipality.
3. All sale of land that is not for the plight of the poor, undergoes public scrutiny via supply chain management processes or Section 21 public participation processes.
Market value is considered with any alienation process and in some cases council sets reserve prices, which are above market value.
Director of Planning and Economic Development, Carel Venter confirms that the selling of municipal land for private development purposes is done at a market-related price.
On this point, the executive mayor of Mossel Bay, Alderman Dirk Kotzé, added: “Contrary to the statement made, the price of land sold to developers has been increased rather than decreased several times, especially measured against the municipal valuations.
"One such an example was the piece of land in Da Nova which was initially recommended to be sold for a minimum of R6 million and eventually the municipality received approximately R14 million for it.”
4. Regular action is taken in areas where high [electricity] distribution losses are experienced.
According to the municipality, however, there are only four factors which affect liquidity calculations negatively or positively. It named and explained these factors as follows:
Tariff setting
"Incorrect tariff setting can put a strain on the available cash. This has not been the case, as a process of cautious and deliberate budgeting was followed which considered the affordability of consumers."
Funding of the budget
"The shortage before recognition of capital grant funding is the main contributing element. This is viewed in a serious light and the matter is receiving the utmost attention of the Budget Steering Committee."
Collection rate
"At present the payment percentage is 94,8%. Every percentage point short of 100% is roughly R12,8 million in cash. The municipality is committed to collecting all debts and special efforts are made to increase the collection rate. Before Covid-19 this rate was at 99%.
"Customers earning just more than the poorest of the poor are hit hardest by the ever-increasing cost of living and are struggling to make ends meet."
Performance against budget
"Over recovery or underspending from the original approved budget creates surplus cash.
"As tariffs cannot be adjusted during the Adjustment Budget the focus of the Budget Steering Committee is currently on realistic revenue calculations. During this process the Expenditure Budget is reduced to align with the cash that is estimated to be generated.
"The approved liquidity policy by council sets the standard to which the minimum liquidity requirement should be calculated and compliance is monitored regularly. The mitigation actions by the municipality are a result of this early detection and monitoring."
Mossel Bay Advertiser asked the municipality whether, in light of the ACDP’s concerns, it considers itself in a financially sustainable position.
“The municipality continues to maintain a high level of sustainability. The cashflow is stable and is monitored consistently, to ensure service delivery is in line with the municipality’s service charter. It is, however, the intention of council to improve temporary liquidity ‘shortage’ as it will affect the Capital Budget and self-insurance reserve of the municipality for future budgets.”
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