Newcastle Municipality plays open cards, as it admits to financial challenges

During a media briefing on Tuesday, 2 May 2023, Cllr Dube and the Municipal Manager, Zamani Mcineka, played open cards, highlighting the Municipality’s current financial standing.

“We understand what is required of the Municipality, but we unfortunately can’t do all of these due to the challenges we are facing,” pointed out Mcineka, who added that the public needed to know where the government entity currently stood.

With this said, Cllr Dube stressed the municipality was committed to carrying out its duties, and this required tough decisions to be made. “Some of these decisions will be unpopular, but they are for the best of the town,” emphasised the mayor.

When looking at why tough decisions will have to be made, Cllr Dube gave an overview of the Newcastle Municipality’s financial situation. The overview painted a bleak picture, clarifying the necessity for the current administration to enforce a more conducive workability in Newcastle.

According to the Newcastle Mayor, the Municipality’s poor financial standing began in 2009.

At the time, he elaborated that the municipality opened with a cash balance of R422 million for the 2010/2011 financial year. However, loans of R164.4 million and R284.8 million were taken in both 2013/2014 and 2014/2015 financial years which saw the total of the loans taken outnumber the municipality cash balance.

Additionally, when looking at how cash reserves were used, Cllr Dube explained that in the 2009/2010 financial year, a decision to engage in a major capital investment programme was taken, which was funded as follows:

• Internally funded capital expenditure (2010/2011): R431.8 million
• Loan funded capital expenditure (2010/2011 – 2015/2016) – R521.3 million
• Repayment of long-term loans (2010/2011 – 2015/2016) – R129.7 million

While there were already cash challenges, Cllr Dube said the Municipality put more strain on the budget and reserves to fund the following:

• Re-engineering: R37.5 million
• Grants recalled: R21 million
• Interest on loan: R27 million
• Bulk purchases: R5.4 million
• Overspent Opex: R21.3 million

“The above are operating expenses which could not be paid from operating revenue,” said Cllr Dube, who added that as of 30 June 2016, available reserves were not adequate to cover the grants, consumer deposits, HDF, insurance reserve and the loan redemption.

He stressed that no reserves were committed to fund the 2016/2017 capital programme during the 2015/2016 financial year, as it was clear that it was not affordable.

With poor decisions in prior years, Cllr Dube highlighted that the creditors payable versus cash became a bane for the government entity. By 2020/2021, R800 264 66 were owed to creditors, with the municipality only having R9 500 299 cash, resulting in a R790 764 364 shortfall.

With the Municipality facing immense financial difficulty, Cllr Dube said a miracle was needed for the Municipality to perform its duties to the fullest.

With this said, the Newcastle Mayor pointed out that a staggering R1.593 billion was owed to the Newcastle Municipality by residents. Out of this exorbitant sum, a total of R1.2 billion was owed to the Municipality by Newcastle East.

It is here that the Newcastle Municipality made its first tough decision. According to Cllr Dube, a decision has been made to approach Eskom and engage with the power utility to gain the authority to supply Newcastle East with electricity.

He said the reasoning behind this was simple. If residents did not pay their utility bills, their electricity would be cut in the same way Newcastle West was.

Admitting this decision might prove unpopular, Cllr Dube stressed that not everyone in Newcastle East was indigent and people needed to start paying their bills.

Other steps to enhance the government entity’s financial standing was through leasing vacant municipal land at the proper market value and finalising its debt.

The Eskom debt, Cllr Dube explained, currently stands at R26 million with the Municipality paying R8.2 million a month. This will see this debt coming to an end within the coming months.

With the end of the Eskom debt in sight, Cllr Dube said the Municipality could focus on service delivery issues such as potholes, blockages and problems at local pumphouses in town.

Another massive problem that the Newcastle Municipality wants to address to save costs is the water leaks in town. The Mayor said the water leaks costs the government entity approximately R4 million a month. Through resolving the water leakages and the Eskom debt, Cllr Dube said the Newcastle Municipality could start looking at addressing multiple issues in town and start addressing the financial challenges.

As the Newcastle Municipality looks at resolving financial challenges, it was highlighted that steps are being taken to approach provincial and national government departments for the necessary assistance. However, this was proving to be a difficult task, Cllr Dube pointed out, especially as certain departments did not appreciate the fact that the Newcastle Municipality was now a coalition-run municipality led by the IFP.

Despite this and the fact that the Newcastle Municipality yet again facing an unfunded budget, Cllr Dube stressed that the coalition led Municipality was steadily gnawing away at the challenges left behind by former administrations in its quest to restore Newcastle to its former glory.

“The resources we require is far shorter than what is the norm,” added Mcineka, who stressed the current administration was working tirelessly to clean up shop in order to provide service delivery as it should.

Cllr Dube further enthused, “This is not an excuse for us to not deliver, but a reality.”

With the Municipality admitting to its financial challenges, as it attempts to fix the situation, what are your thoughts on the above-mentioned? Share your views in the comment section below.