The Newcastle Municipality has long been accustomed to facing adversity and challenges. However, recent revelations indicate that the situation is far more serious than many residents had realised. In fact, it has now come to light that the Newcastle Municipality is technically bankrupt.
This shocking information emerged during a public meeting hosted by Ward 2 Councillor Bebsie Cronje, where Newcastle Municipal Manager Zamani Mcineka detailed the Municipality’s current financial standing.
Before delving deeper into the matter, it should be highlighted that as reported by Newcastillian News on 1 October 2024, the Newcastle Municipality is among one of 66 municipalities in the country that have been classified to be in a state of distress. At the time, it was highlighted that this alarming revelation stemmed from a parliamentary response delivered by Minister of Cooperative Governance and Traditional Affairs (CoGTA), Velenkosini Hlabisa, to a question raised by the Democratic Alliance’s Anna Maria van Zyl.
For context, a distressed municipality in South Africa refers to a local government entity facing significant financial, operational, or administrative challenges. Such circumstances often result in the municipality being unable to fulfil its most basic service delivery obligations to residents, leading to frustration among the public.
To read more on this subject, click here.
Addressing concerned residents from Ward 2, which includes Signal Hill, Pioneer Park, and Sunnyridge, Mcineka candidly outlined the immense challenges currently facing the Municipality. Reflecting on the ongoing crisis, he emphasised the need to examine the roots of the local government’s problems.
“The Municipality in the 2010/2011 financial year opened its books with a balance of R422 million. Those were the cash reserves the Municipality had. However, in 2013, 2014, and 2015, the Newcastle Municipality went out to make huge loans against the advice of the National Treasury, to the tune of almost R450 million,” Mcineka explained, noting that these loans have severely hampered service delivery and contributed to the Municipality’s deteriorating financial situation.
According to the Municipal Manager, the loan funding for capital expenditure from 2010/2011 to 2015/2016 totalled R521.3 million, while the repayment of long-term loans in those financial years amounted to R129 million. “Why were we taking these loans? They were taken under the pretence that the Newcastle Municipality was going to refurbish and upgrade the infrastructure,” he said, adding that when he began to inquire about the whereabouts of this loan funding, he received an unexpected answer—none of the money went towards the intended projects.
Mcineka also pointed out that all the burst pipes, sewage and water leaks, failing road infrastructure, and non-functional streetlights could have been rectified. “Actually, it was the opportune time to address these infrastructure issues. But we did not, and whatever we did, we only scratched the surface,” he remarked.
With the burden of significant loans weighing heavily on the Municipality and infrastructure issues only addressed superficially during this period, Mcineka stated that the previous administration made poor decisions that further strained the budget and depleted reserves for the following:
- Reengineering at R37.5 million. Reengineering, according to Mcineka means job valuation. Mcineka explained the Municipality did this despite the Bargaining Councill already having approved a collective agreement for all municipalities to undergo job evaluation.
- Grants totalling R21 million were recalled by the respective government funders.
- Interest on the loans stood at a staggering R22 million.
- Operational expenditure was overshot by R21.3 million.
By June 2016, Mcineka stressed, that available reserves were inadequate to cover grants, consumer deposits, insurance reserves, and loan redemption. This was a stark contrast to the Municipality’s R422 million cash reserves in 2009/2010, during which creditor debt was merely R9 million.
With cash reserves dwindling and creditor debt escalating, Mcineka revealed that from 2015/2016 onwards, the Municipality’s situation began to deteriorate significantly, reaching alarming levels.
Presently, the Newcastle Municipality owes creditors a staggering R1.74 billion, with a mere cash balance of R26 million. The repercussions of the loans taken in previous years have now caught up with the local government, while additional creditors have emerged in the process.
Mcineka further indicated that the Municipality also owes ABSA and DBSA a combined total of R291 million. Furthermore, R284.8 million was borrowed to complete the Municipal Office on Harding Street and address various service delivery projects. However, he noted that a total of R194 million was allocated to the building itself, with this substantial loan set to be repaid by 2030.
Given the current state of infrastructure, which has surpassed its lifespan and should have been addressed years ago, Mcineka explained that the Newcastle Municipality finds itself in a difficult position. Officials are striving to resolve the financial crisis left behind by previous administrations, as the loans were not utilised for their intended purposes.
With these loans placing immense financial strain on the Newcastle Municipality and its service delivery, Mcineka said, “The Municipality is technically bankrupt.” The Municipal Manager further highlighted that this was one of the reasons why the Newcastle Municipality was listed as one of the 66 municipalities in distress.
Another contributing factor to the dire financial situation was the contractor services, which in 2021/2022 amounted to R650 million once rounded off. Mcineka said this was due to the housing grants being paid into the municipality’s bank account, which has since been changed, to ensure it was used as it should be.
Furthermore, the contractor services are now just over R11 million and are being dropped even further, noted the Municipal Manager. Among the strategies taken to address this issue, was acquiring the necessary machinery of its own.
To read about the equipment the Municipality acquired, click here.
Residents questioned the Municipal Manager on the measures being taken to rectify the situation and sought clarification on control measures for fruitless and wasteful expenditure reported by the Auditor-General.
To view the Auditor-General report, click here.
The Municipal Manager stated that Newcastle Municipality is currently constrained by decisions made under the previous administration.
He explained that while efforts will be focused on repaying debts, maintaining essential service delivery remains a priority. Addressing the issue of wasteful expenditure, he clarified that certain funds were allocated to managing unbudgeted emergencies affecting the community, which hindered the proper procurement process. However, he assured residents that the Municipality is implementing stricter controls to minimise such occurrences going forward.
Looking towards accountability for the poor decisions that have left the Municipality in its current predicament, Mcineka revealed that the Commercial Crime Unit has opened cases against officials and contractors following investigations by the Special Investigating Unit (SIU).
To read more about the SIU investigations, click here.
Although the Municipality’s classification as technically bankrupt is a significant concern, Mcineka emphasised that strategies are being put in place to improve its financial standing. Additionally, measures will be introduced to prevent officials from exploiting the Municipality in the future, while also addressing revenue collection processes in both Newcastle West and Newcastle East to help improve the financial situation.
Considering these developments, residents are encouraged to share their thoughts and opinions in the comment section below.
Comments 5
It’s funny how the tendency of failing government institutions have become a regular appearance in the post ’94 South Africa.
We all know the reason for this,but boy oh boy you dare not even think it otherwise you’ll surely be in the biggest trouble anyone can ever imagine getting themselves into.
The question is however,what are we going to do when we hit day zero?When the taps run dry,when there’s no more tar roads to drive on,no more of many things we’ve grown to take for granted. Are we then only going to try and get competent people back to fix the mess created over 30years+, or are we going to say enough is enough and get rid of incompetent people now,irrelevant of their political affiliation,We might ,before it’s too late to be able to fix anything?
I dread to think where we’re going to find ourselves in 2-3years from now!!We might find that Zimbabwe and Venezuela doesn’t look as bad as what it’s made out to be!!Let’s all pray that we never get there!!!
I wonder if this huge theft will ever be recovered and those thieves be caught and imprisoned. This is a staggering level of crime. Newcastle citizens must demand the return of the looted funds
We, the people, will have to pay back the millions which were looted. People are working to solely pay this disgusting municipality.Who hires these corrupt criminals?Customer service is at an all time low. Problem is the people who are running the municipality are just doing it for their exorbitant salaries and do not care about the town or its people.FIRE THEM ALL AND HIRE COMPETENT QUALIFIED INDIVIDUALS TO DO THE JOB!!!
But there are “funds” to purchase yellow plant equipment while Newcastle is falling apart? Look at the state of our streets. How many street lights remain dysfunctional after being reported? There was a big campaign prior to the elections to report faulty street lights. What a smoke screen!!!! These very same faulty street lights remain unrepaired to this day.
Pathetic, to say the least.