Metro needs R190bn for full financial turnaround

The Tshwane metro plans on collecting over R190-billion in revenue from residents and businesses to improve its credit profile.

In recent months, the metro has been unable to make payments to Rand Water and Eskom on time as it faces cash-flow problems.

Finance MMC Peter Sutton said the metro was “technically insolvent” and currently did not have enough money to meet its expenditure.

He said, however, the metro was working on measures to improve its financial position.

“When current liabilities exceed current assets, a company or organisation is technically bankrupt. In the case of a municipality, it is also known as an unfunded budget.

“This situation in Tshwane has been the reality for the past seven years.”

He said the plan to try to rescue the metro from its current financial position was to collect about R4-billion each month over the next four years.

The metro’s current position means more stringent financial management must be applied as the metro is also incapable of qualifying for long-term loans.

“Tshwane is not bankrupt but it does mean stronger financial management and cost-saving measures must be applied to manage the situation.”

He said despite collecting around R9-billion from residents in the past four months, the metro still needed to collect about R190-billion in the next four years to turn its finances around.

Sutton said despite the recent strides in collecting revenue, the metro was not out of the woods yet.

“We will not be able to pay Eskom in full yet because of our liquidity problems,” Sutton said.

He said Moody’s 2021 metro downgrade rating had disqualified it from attaining long-term financial assistance.

“The metro does not qualify for long-term loans due to our financial grading and liquidity challenges,” he said.

The metro does, however, qualify for short-term loans.

Moody’s in 2021 said it was unlikely that the metro’s credit rating would be upgraded citing low-revenue collection and increasing operating expenditure for its decision.

“A rating upgrade is currently unlikely, considering the rating under review for further downgrade; however, Moody’s could consider confirming the ratings if the City implements restorative measures or receives financial support,” it said in the statement.

Moody’s highlighted that the ongoing material pressure on the metro’s revenue generation and liquidity position would have a negative outlook on operations.

“Moody’s would consider a further downgrade of the rating if the City defaults on its financial obligations with expectations of significant losses for creditors, consistent with a lower rating, or if the extent of the fiscal challenges is greater than anticipated, pointing to future, material losses.”

Moody’s said the metro faced growing demographic-related infrastructure spending pressures, high unemployment and income inequality.

It said a review period would allow Moody’s to fully assess the metro’s liquidity position, its financing needs and sources over the near and medium term and the implications of a potential default, in particular, if it resulted in accelerated debt repayments.

“Although our rating incorporates a low likelihood of extraordinary support from the central government, the review period will also allow us to examine potential forthcoming supportive measures.”

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