SA: Metropolitan Council Battles With Finances

The Johannesburg metropolitan council continues to battle with its "fragile" finances but indications are that things will improve in the next three years.

The council's chief financial officer, Roland Hunter, said yesterday that finances were "fragile" because Johannesburg did not have reserves in the bank for emergencies. The focus of the council would be to build the reserves while at the same time continuing to provide sustainable service delivery.

A new financial plan, presented to the council's mayoral committee at its budget council last week, projects that Johannesburg would have an operating surplus of R251m in the next financial year beginning in July, increasing to R534m in 2002-03. It is projected that capital expenditure would grow from R842m to R892m in the next financial year and to R922m in 2002-03.

This would be financed through money received from the finance department's restructuring grant, the sale of assets (Rand Airport, Metro Gas and nonstrategic land), developers' contributions, contributions from the operating surplus and external loans.

The grant from the finance department would contribute R270m in the 2001-02 fiscal year, while R103m would come from the sale of assets, with a conservative estimate of R155m coming from developers, R137m from operating surplus and R226m from external loans.

"The consequences of not meeting targets (as spelt out in the grant agreement with the finance department) are severe," said Hunter, referring to the department's decision not to pay R75m last November because it failed to meet its target in revenue collection. However, the grant was ultimately paid after negotiations.

The newly created utilities would provide the council with an operating surplus of R310m in a form of dividends and rates, R997m from core-council, but would continue to subsidise agencies and corporatised entities like the Johannesburg Zoo at a cost of more than R1bn.

The main contributing factor to the council's finances, according to Hunter, was R3,6bn owed by defaulters in rates and services and internal problems relating to the billing system.

"We are not in a financial crisis but we do remain in financial difficulty. Our situation is still fragile and it requires a lot of discipline and commitment."

He said a financial crisis like the one that befell the council in 1997 could be triggered by the inability to collect revenue, spending "widely" and the inability to raise money for capital projects. However, things are looking better.

International credit rating agency Fitch IBCA, in its December 2000 rating, gave Johannesburg a BBB+ rating for its ability to repay long- term loans and A2 for the short term. The council's capacity to collect outstanding debts for taxes and services affected this rating. The rating was the same as the one that the council received in June 1999.

Hunter said: "We are not in a crisis. We have a plan with optimistic outcomes. Our main problem is revenue."

Leader of the Democratic Alliance in Johannesburg, Mike Moriarty, said there would not be any long-term improvement in the council's finances unless payment levels could be increased to about 95%.