Latest news with #R28-billion
eNCA
6 days ago
- Business
- eNCA
Illicit cigarettes availability in stores increases
JOHANNESBURG - New Ipsos research shows that the availability of illicit cigarette in South Africa has reached its highest levels on record. Over 75-percent of shops countrywide are now selling cigarettes below the threshold applicable to a pack of 20. Approximately R28-billion in annual tax revenue is being lost to illicit trade: enough to exceed SARS's entire additional collection target of R20-billion. Despite increased raids and product seizures over the past year, illicit cigarette availability has continued to grow. The industry is calling for urgent reforms in the industry to curb the trade. Tax Justice South Africa is calling for more to be done to nip this issue in the bud.
Daily Maverick
19-06-2025
- Business
- Daily Maverick
Promises, potholes and a R71bn budget — can Mayor Xaba Fix Durban?
eThekwini Mayor Cyril Xaba is trying to lead a turnaround, but the city faces spiralling debt and a billing crisis. eThekwini Mayor Cyril Xaba is talking it up, and who can blame him? The man at the helm of a city hobbled by corruption is putting his best foot forward, trying to build trust with citizens fed up with crooks. Last week, Xaba passed a R70.9-billion budget, and his recent speeches to council and business have been measured and optimistic. Xaba, constantly drilled by ratepayers, is basking in a bit of glory after Durban successfully pulled off a host of big sporting events, which saw the city spruce up and the metro police out in full force. But while the mayor's reassuring language is laden with mollifying words about National Treasury prescripts and the virtues of consequence management, he is in the spotlight. The city's public relations machine aims to signal competency and accountability, distancing Xaba from the ineptitude and looting that have come to characterise the municipality. The jury's out on how much difference Xaba has made since he was parachuted into the top job a year ago. His installation coincided with a provincial intervention in the city headed by former city manager Mike Sutcliffe and former presidential director-general Cassius Lubisi. A month before their arrival, President Cyril Ramaphosa established a working group in response to business concerns about city failures. And, a year before that, the city launched a turnaround strategy. So, while First Citizen Cyril is trying hard, ratepayers, business and opposition parties are concerned that the city is sliding deeper into debt. Not everyone likes Xaba's numbers, especially tariff increases. The average property rate increase is 5.9%; Electricity is up by 12.72%; Water is up by 13% for residents and 14% for businesses; Sanitation is up by 11%; and Solid waste is up by 9%. Daily Maverick sent the city a detailed list of questions relating to the budget, which it says the treasury department wants to answer fully. We will share this when it becomes available. In broad strokes, the budget allows R63-billion for operational expenses and R7.3-billion for capital projects. The big-ticket items include bulk purchases from uMngeni-uThukela Water (R5.7-billion) and Eskom (R18.7-billion). The city spends R15.2-billion on salaries for about 24,000 staff, R7.6 billion on contractors and R1-billion on interest for loans. Debt crisis The city's big issue is growing debt. Residents owe R35.5-billion, which the city puts down to the economic crunch, but critics say rates and services are too costly. Of the total debt, 40% is for unpaid water. Outstanding property rates and unpaid electricity account for 25% and 15%. Most of the debt (75%) is owed by households. Businesses owe 20% and state departments the balance. In December 2023, the debtor's book was at R28-billion. A year later, it was at R35.5-billion, which had risen to R38.6-billion by April. This means the city will need to borrow more or bill more for services. In a bid to staunch the losses, it is offering businesses and residents a chance to write off 50% of their debt if they settle before the end of June. The valuation roll has only 554,280 rated properties (481,000 residences, 17,000 businesses and 7,000 industrial). About 330,000 properties are valued at less than R350,000 and rates-exempt. Another 150,000 are worth more than R350,000, but are not rateable. Durban, with a population of about four million, has more informal settlements than any other city in the country (about 600 with 314,000 households). And, other metros in South Africa have more rate-paying households. Figures from the Centre for Affordable Housing Finance in Africa show about 824,000 residential properties on the deeds registry in Johannesburg and about 767,000 in Cape Town. In eThekwini, the Ingonyama Trust (land administered by the Zulu king) controls huge swathes of land where properties are not rated. Alan Beesley is an accountant, a former eThekwini councillor and ActionSA's finance spokesman. 'The only way for the city to fix its books is to spend less and offer a better service that will attract more ratepayers. At the moment, Durban has a shrinking ratepayer base subsidising a growing number of people not paying for services.' Business backlash Xaba has promised the city will bring in more money from rates and services, and that officials will waste less and work harder. 'Dashboards linked to service delivery targets' are among a host of measures to improve and cut annual water losses of R2-billion. 'We will bury potholes, sweep the streets, cut the verges and keep the lights on,' Xaba promised. Reaction to the budget has been testy. The Durban Chamber of Commerce and Industry is concerned with low confidence in the municipality's ability to spend on priorities. There was a 'continuous disconnect' between what happened on the ground in Durban and the 'grand plans' emerging from the Presidential Working Group. 'We need to see meaningful action with key timelines and tangible reforms that will accelerate service delivery and reverse the economic decline,' the chamber said. Water losses might be higher because many meters were 'dysfunctional or not working at all'. Tariff tensions The Ethekwini Ratepayers Protest Movement (ERPM) is tired of city hall promises. ERPM's Rose Cortes roasted the 'habit of reckless lending and spending', saying some parts of the municipality were 'delinquent'. The ERPM says city billing is a mess. 'For example, they didn't read the water meters for extended periods and some residents had underground leaks which they didn't know about. Then, when they actually read the meter, you are hit with a massive bill you can't pay. They won't give us stats on how many meter readers they have. The contractors are paid, but they don't read the meters, some for as long as 500 days.' Cortes says some houses valued at less than R350,000, which qualify for rates exemption, free water and discounted electricity, don't receive this benefit, but others that don't qualify do. The only way to stop blatant theft and crooked deals was line-by-line scrutiny of spending. Cortes said the city recently ran out of money to pay contracted plumbers and even the mayor expressed concerns about the poor workmanship by contractors. Also, city schemes to provide poor relief were dubious, Cortes said. 'Reports on indigent households are inaccurate and the process to register for indigent care is ineffective and stupid.' ERPM's chair Asad Gafar said 500,000 ratepayers effectively cross-subsidised eThekwini's four million-plus residents. 'Ratepayers wouldn't object to the cross-subsidy if the city improved the lives of the poor, but it doesn't. Instead, losses increased, like the water that bleeds into the ground through leaking pipes, or just flows 24/7 at standpipes, unmonitored. Or, the water is pumped into tankers by the mafias and then dumped so they can turn the truck around and fill it up and get paid for another trip.' Broken billing Democratic Alliance councillor Alicia Kissoon sits on the city's finance committee. She said the budget was 'polished on paper', but operationally detached. The real picture emerged in the adjustments budget, where money was 'constantly reallocated in a cycle of crisis management which is like robbing Peter to pay Paul'. R345-million for 100 new water tankers was a prime example of short-term thinking. 'Tankers do not fix leaking infrastructure. It masks a systemic failure to repair broken pipes.' Kissoon said it was unsustainable for so many residents not to pay for rates and services. The city was dealing with a 'dangerous culture of administrative neglect, contractor abuse and non-payment.' Inkatha Freedom Party councillor Jonathan Annipen voted for the budget because the city provided free services to poor residents. He praised the city's recent 'determined effort at transparency'. To 'avoid collapse', the city had to improve revenue collection, debt recovery and credit control. But, Annipen said, billing was bedevilled. 'Daily, we hear heart-wrenching stories where frail, elderly and disabled citizens have their services disconnected, and the city has no credible dispute mechanism. I intervened in the case of a pensioner who was suicidal because he was lumped with a R1.3-million monthly bill for water and electricity, but investigations revealed he was actually owed a credit. 'People wait three months for a water leak to be repaired. Water is flowing down the street by gallons and you call the contact centre, they tell you the fault has been closed.' DM
Daily Maverick
06-05-2025
- Business
- Daily Maverick
Shocking reality of systemic water sector collapse laid bare
At the recent Presidential Water and Sanitation Indaba, the shocking reality of the systemic collapse of the water sector was laid bare for all to see. Reliable information from the Blue, Green and No Drop Reports indicates that more than 100 municipalities are dysfunctional. The impact of this dysfunction is failing infrastructure, deteriorating water quality, escalating costs, growing unreliability and the glaringly obvious inability of delinquent local authorities to fix what is broken. None of this is in dispute any longer. At the heart of the problem is financial mismanagement. If one just looks at the water boards, then the extent of the crisis becomes apparent, because a staggering R28-billion is owed by municipalities to the water boards. Let us unpack this in greater detail. The Water Services Act of 1997 distinguishes different legal entities in the water services value chain. Only a water services authority (WSA) is allowed to provide potable water to consumers. Typically, the municipality is also the water services authority, but the act also provides for a separate category of legal service provider. This is known as a water services provider (WSP), which must be registered as a technically competent entity, and it can operate under contract to the water services authority, which in most cases is the municipality. Accountability The differences between these two entities are important. The first difference relates to accountability. The WSA is legally accountable for water services that are compliant with the human health safety standard known as SANS 241. If the municipality is also the WSA, they cannot absolve themselves from their accountability under law, even if they appoint a WSP to act on their behalf. In effect, the WSP becomes the technically competent agent acting on behalf of the WSA, but only the WSA is legally accountable if the WSP fails to deliver. This is where contractual obligations become important, because the WSA can delegate responsibility for service provision, but it cannot delegate accountability. This is an important aspect to understand, because the Financial Management Act does not recognise fiduciary trust. Think of fiduciary trust as the legal obligation of an executive, known as the fiduciary, to act in the best interests of those on whose behalf financial decisions are being made, typically on a board. It prevents the executive from promoting their own self-interest above the interests of the people on whose behalf they are acting. Under present circumstances, when municipal executives mismanage funds, they are not legally accountable to the same extent as company directors are in terms of the Companies Act of 2008. Roles The second difference is about the role of each structure. A WSA is responsible for planning, regulation and the assurance of supply to the public. Assurance of supply is the guarantee of a defined pressure, quality, quantity and price at a defined location. The WSP is contracted to provide the actual services needed to meet the WSA's objectives. Again, the municipality cannot absolve itself from accountability. The third difference is that the WSA has the right to contract a WSP, but the relationship between the two is such that the municipality will always be the master and the WSP will be the subservient actor. So, we have two legally defined entities at play, with precise roles and responsibilities, with the WSA always being the single accountable authority if the WSP fails to deliver. However, there is a third legally defined entity in the water services value chain. Water boards are defined as Schedule 3B State Owned Enterprises (SOEs) in terms of the Water Services Act. The water boards must be self-funding, because they can receive no bailouts or operational grants from government. This makes them fundamentally different from municipalities acting in their role as a Water Services Authority that receives various grants from government for infrastructure upgrades. Planning This ties in with the second role defined above – planning. Only the municipality is responsible for the planning for water infrastructure, which is a responsibility from which they cannot absolve themselves. That planning determines the infrastructure grant that is allocated to the WSA. Poor planning equates to inadequate funding for infrastructure upgrades, which has nothing to do with any water board. That same planning by the WSA is fed into the water board, because they need to finance future upgrades in the bulk supply system by raising capital on the bond market. A fundamental difference between a municipality and a water board is that the former relies on grant money provided by the state, whereas the latter can only raise capital by leveraging the strength of their own balance sheet when raising bonds. The Rand Water Bonds are particularly robust because they are the single largest sustainability-linked bonds in Africa. Revenues A second difference between a municipality and a water board is that the former collects revenues from all its customers, whereas the latter only collects revenue from one customer – the municipality acting as the water services authority. This means that the level of complexity in the billing and revenue collection systems is skewed in favour of the municipality, which must manage thousands of monthly invoices and statements, whereas the water board manages only one invoice and statement per municipality that it supplies. In the case of Rand Water, that means three large metros (Johannesburg, Tshwane and Ekurhuleni), plus many smaller municipalities. Stated differently, the municipalities must manage a significantly more complex revenue collection system than water boards. Delinquency It also means that water boards are more vulnerable to a delinquent customer than a municipality is. If one municipality is delinquent, then the water board runs the risk of insolvency, which in turn impacts its capacity to raise capital on the bond market because of a compromised balance sheet. The importance of all this detail becomes relevant when we focus on the ability of the delinquent municipality to self-correct. They simply go to government and ask for a bailout, which the water board cannot do. Therefore, the insolvency of a water board is a significantly bigger risk to society than the insolvency of any single municipality. Using Rand Water as an example, if they face a liquidity crisis because one large metro doesn't pay its monthly invoice, then many other municipalities and metros will be impacted negatively. What happens if the government is unable to bail out a municipality? That's where the rubber meets the road, because that is precisely where we are at present. The tax coffers are empty, so bankrupt municipalities are simply unable to fix what is broken. The last line of defence is the Schedule 3B SOEs such as Rand Water, Umgeni Water, Berg Water and Magalies Water, whose balance sheets are still strong enough to raise the necessary finances on the bond market. This is why the Association of Water and Sanitation Institutions of South Africa (Awsisa) has worked closely with these water boards to pioneer the concept of Public-Private-Partnership Special Purpose Vehicles. This brings the Companies Act into the picture, which holds officials legally liable in terms of the many fiduciary laws associated with corporate governance. This is literally the last line of defence between the public and a failing state. It is also the reason why attempts are being made to sabotage the initiative, because the gravy train prospers when fiduciary responsibility is absent. DM
