Tag: municipalities

Source: MyBroadband

Many poor South African municipalities are drowning in debt to Eskom due to a culture of nonpayment by consumers, according to a report in the Sunday Times.

Maluti-a-Phofung, one of the poorest municipalities in the country situated in the foothills of the Drakensberg in the Free State, owes Eskom close to R3-billion, the report stated.

Co-operative governance minister Zweli Mkhize said the municipality was the worst electricity payments defaulter in the country, criticising the lack of payment by consumers and problems with ageing infrastructure.

Mkhize said that political instability in poor municipalities paired with a failure to perform basic legislative responsibilities has lead to the collapse of service delivery.

“Municipalities which enjoy political stability tend to be characterised by a more settled and mature political and administrative leadership,” his report stated.

Uplifting poor municipalities
In his presentation to the ANC’s national executive committee, Mkhize said he had appointed an advisory panel to find a solution to the growing debt of these poor municipalities.

Recommendations included a strong provision of basic services and a concerted effort to promote payment among residents in these areas.

Mkhize’s report also raised concerns of inadequate skills and political infighting within municipal councils, which he said weakens the ability to perform legislative tasks and creates an environment in which it becomes easier to commit fraud.

Following the loss of R1.5 billion in municipal funds invested in VBS Mutual Bank, Mkhize said municipalities should be transparent about planned capital projects and find alternatives to preserve financial stability.

The total debt owed to Eskom by South African municipalities has reached R14 billion, with delivery of services such as sewage and water also suffering in affected municipalities.

The energy regulator recently announced that Eskom plans to recoup the vast amounts of money lost in unbudgeted costs incurred in the 2014-2017 financial years.

The utility is able to raise power prices by 4.4% to regain the expenses through its regulatory clearing account, with standard tariff customers bearing the brunt of the R32.7 billion it aims to recover.

Eskom is also said to be affected by a coal crisis, where at least four of Eskom’s 15 coal-fired power stations had less than 10 days of coal on hand in September.

By Abha Bhattarai for The Washington Post 

The city of Atlanta, Denver public schools and the Mesa, Ariz., police department are among the 1 500 public organisations that since last year have signed new contracts to buy office supplies, books, even musical instruments directly from Amazon, according to a report released Tuesday by the Institute for Local Self-Reliance, a nonprofit group that advocates for strong local economies.

The contracts with Amazon could drive billions of dollars in public spending to the online giant in coming years, propelled in part by the ease of purchasing online — but which, like in consumer retail, risk penalizing independent retailers.

The local deals are part of a larger contract Amazon signed in January 2017 with U.S. Communities, a purchasing cooperative that negotiates contracts with suppliers on behalf of its members, which include a number of municipalities and government agencies. The five-year contract, which can be renewed for up to 11 years, is valued at $500 million a year.

The U.S. Communities contract was last held by Independent Stationers, a group of independent suppliers around the country. Amazon already sells to tens of thousands of local governments and agencies, according to Amazon spokeswoman Lori Torgerson.

“As public dollars shift to Amazon and away from local independent suppliers or even national chains with local stores, cities are undercutting their own local economies,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance and a co-author of the report. Mitchell says the new contracts also hurt national chains like Office Depot and Staples that have stores in some of the communities that also purchase from them.

Amazon, which pays local taxes where required, said its contract continues to support small businesses. “The competitively solicited contract helps education and public sector organizations purchase directly from the Amazon Business marketplace, which includes small, local and socioeconomically diverse businesses,” Torgerson said.

Christine Gilbert, a spokeswoman for U.S. Communities, added that the Amazon contract “supports supplier diversity” by allowing agencies to work with a range of businesses that sell items through Amazon’s marketplace. More than half of the site’s sales come from third-party merchants.

But the Institute for Local Self-Reliance says the contracts do not include price guarantees or volume discounts that are typical of public purchasing agreements, potentially putting cities and counties at risk of overpaying for basic supplies.

“What’s striking here is that Amazon won this contract without having to compete on price,” Mitchell said. “This contract deviates from the norm in significant ways that put local governments at risk for spending more and getting less.”

A spokeswoman for Amazon said the company was one of multiple suppliers that responded to a formal request for proposals for the U.S. Communities contract.

Guernsey, an office products company in Dulles, Va., has been selling janitorial supplies, office products and furniture to government agencies for more than 40 years. But recently, founder David Guernsey says, the company has struggled to compete with Amazon’s selection of tens of millions of items, compared with the 50 000 he sells on his site.

About a year and half ago, he began creating spreadsheets for his clients showing how his fixed prices compare with Amazon’s at a given moment. Most of the time, he said, his prices were lower.

“We’re bleeding business to Amazon,” Guernsey said. “There’s this perception that Amazon has everything and that it’s easy to use, but we’ve been providing next-day delivery for three decades. It’s not as if they’ve invented the wheel.”

Officials at Prince William County Public Schools in Northern Virginia say they plan to spend roughly $1.5 million on Amazon purchases this year. The site has become a “one-stop shop” for school administrators, who are already accustomed to making personal purchases through Amazon, said Anthony Crosby, the school district’s acting purchasing supervisor, who helped negotiate the contract on behalf of U.S. Communities.

“Before this contract, people were out here independently setting up Prime accounts and making purchases,” he said. “All this does is create a legal pathway for them to do so.”

Denver Public Schools spent $1.6 million on Amazon orders in 2016, while Salt Lake County in Utah; the city of Austin, and the Portland, Ore., school system each spent more than $500,000 on the site that year, according to the ILSR report.

Amazon has been aggressively building up its government business in recent years. It hired Anne Rung, who oversaw procurements for the Obama administration, to lead its public-sector division in 2016 and last year forged an agreement with the Department of Homeland Security that allows workers to make purchases directly from Amazon. Amazon spent $12.8 million lobbying the federal government last year, up from $11 million a year earlier, according to watchdog site OpenSecrets.org.

By Sipho Masondo for City Press

Fears are mounting that up to 15 municipalities across the country could collapse because they are not likely to recover their R1.5bn investments at VBS Mutual Bank.

Their exposure to VBS was “too large compared to their operating revenue”, according to a Treasury document sent to the affected municipalities last week.

The SA Reserve Bank (Sarb) placed VBS under administration in March, following a liquidity crisis. VBS’s main source of cash was illegal short-term municipal deposits which it used to fund long-term loans to clients.

Senior Treasury officials fear that some of the municipalities – based in Limpopo, North West, Gauteng and Mpumalanga – could collapse. This would force their provincial governments to place them under administration.

The Treasury report reveals that the 15 councils are unlikely to recover their R1.5bn total investment.

“The payout to municipalities is highly uncertain,” the document reads. Its authors point out that Sarb is likely to prioritise retail depositors and not bail municipalities out.

“In line with the mandate of protecting the most vulnerable, the restructuring will focus on the depositors. At this stage, the ordinary depositors will get back almost all their deposits,” reads the document.

Sarb has already approved a restructuring that would benefit rural retail depositors, funeral insurance collectives, stokvels “and other vulnerable groups”.

“There may be little left for municipalities, which deposited illegally. It is a general principle that no bailouts are provided to municipalities,” the Treasury document says.

A senior Treasury executive said there were concerns that because of their “reckless investments” at VBS, some of the municipalities may no longer be financially viable.

“Some of their finances are in tatters, and they may need to be placed under administration,” the executive said.

Salaries in jeopardy

The official cited the example of Giyani, which invested R158m of its R302m operating revenue in VBS.

“How does a municipality without half of its operating revenue survive?” the official said.

The newly established Lim 345 Municipality, in the Thohoyandou area, had invested R122m of its R344m operating revenue in VBS. Greater Tubatse in Sekhukhune had put R210m, or 38%, of its R548m operating revenue in the bank.

Another Treasury executive said this money was part of municipalities’ annual budgets and not extra money that the councils could function without.

“Unfortunately, they have lost all that money and it is only a matter of time before you hear that some of them are not able to pay salaries. I’ve heard that one of them nearly didn’t pay salaries in November last year,” he said.

An executive member of the SA Local Government Association said it was “almost a foregone conclusion that some of these municipalities will crash”.

“We are losing sleep over the issue. The money was strictly for operational issues, not reckless investments,” said the official.

Fictitious deposits, untraceable lending

The Treasury report reveals that about R900m is missing at VBS.

“This money appears to have disappeared due to fictitious deposits and untraced lending. There is evidence of large, unrecoverable loans to directors and related parties. There is some evidence that VBS paid a lawyer a ‘commission’ when municipalities deposited money with the bank. It is not, at this stage, evident if this commission was passed on to municipal managers.”

The report says the bank’s business model was “ill-fated and doomed to fail”.

“VBS made long-term loans, knowing that their primary funding was short-term in nature and lumpy. Hence the business model is almost certainly designed to generate liquidity problems when a few municipalities withdraw their funds to spend on budgeted programmes,” the report reads.

Law was broken

Treasury says VBS actively flouted the law by focusing on municipal deposits, which made up almost 75% of all its deposits. Despite being aware of the restrictions on accepting municipal deposits, the bank continued to accept more. This continued even after it started talking to Treasury about phasing out its past municipal deposits, in order to comply with the Municipal Finance Management Act.

The Mahikeng, Greater Tubatse, Ruth Segomotsi Mompati and Elias Motsoaledi municipalities appear to have been enticed by the high returns the bank promised and disregarded the act.

Curator’s ‘extortionate’ fees

Two VBS senior managers accused the bank’s curator, Anoosh Rooplal, employed by auditing firm SizweNtsalubaGobodo, of charging “exorbitant and extortionate” fees. He sent the bank a bill of R2.6m for three weeks of work.

Sarb appointed Rooplal when it placed VBS under administration in the middle of March.

Rooplal sent the bank his invoice on March 31. The bank paid three days later.

One of the managers said: “If you invoice R2.6m in three weeks, how much will you be paid every month? How much will Anoosh and SizweNtsalubaGobodo be paid by the time the bank is back on its feet? It all looks exorbitant and extortionate.”

Another manager lamented the fact that while depositors could not access their money, the curator was being paid handsomely.

“It simply just doesn’t make any sense to me,” the manager said.

The curator’s spokesperson, Louise Brugman, said Sarb had approved the remuneration and fee structure for the curatorship upfront.

She said that, as per normal governance practice, the curator was required to regularly update Sarb on fees, related activities and the bank’s financial position.

“As further irregularities have been uncovered within the bank, additional experts have been required to assist to restore the bank, all of which is reported and explained to Sarb,” she said.

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