Polokwane’s financial liquidity rate is currently being described as ‘unhealthy’ by the National Treasury, and was one of the reasons the municipality’s plan to obtain a R300 million loan was met with resistance at a council meeting last week.
National Treasury, in a letter to the municipality, said they have analysed the municipality’s financial position and performance based on the audited 2018/19 financial statements and their analysis has shown that the municipality’s liquidity position is declining.
They also noted that the liquidity rate for the past three financial years was below the norm, which ranges between one and three months, adding that the weak liquidity position places the municipality at a high risk, as the ability to honour financial obligations as and when they become due and payable may be threatened and required closer attention.
They advised the municipality to improve revenue and cash management as well as operational efficiencies.
Treasury also said the municipality’s collection rate is of major concern and said the high provisions for impairment of receivables from exchange transactions is signifying increased debt write-offs that would impact negatively on the municipality’s cash flow position.
The municipality last week during the council meeting, decided to write off R320,6 million of debt owed by Mankweng residents.
The municipality is obliged to get Treasury’s views and recommendations about a long-term loan, and they wanted to obtain the R300 million loan to finance construction and upgrading of 34 rural roads.
During a Council meeting earlier this year, the opposition refused to vote in favour of the loan, as they said they were not given the documents, as required, 21 days in advance to peruse the conditions of the loan and wanted to see Treasury’s input and advice on obtaining such a loan, as required.
The accounting officer, following the receipt of Treasury’s letter, and, upon further consultation with the Auditor General, decided to review the process of the long-term borrowing and to follow a competitive bidding process – as prescribed by law.
Treasury warned that should the municipality obtain the loan from DBSA for a 15-year period and at 10,25 % interest, repayment would be deemed fruitless and wasteful expenditure as it would not be obtained in accordance to legal prescripts and supply chain regulations. Their advice was that the municipality should carefully consider utilising such a large loan for non-revenue generating projects but rather consider utilising it for a project that could generate revenue.
The R300 million loan, with a two-year capital holiday, would mean that the municipality in the end have to pay back R609,2 million, Treasury said.
The municipality’s Directorate of Transport motivated that the road concession already commenced in the 2018/19 financial year, an engineer had been appointed to execute the planning and design thereof and the project was tender-ready, awaiting only funding to commence with the execution of the projects, and ten projects are already underway.
The decision was taken that it would embark on an open bidding process and a decision would be taken afterwards if the loan would be obtained.
Story: Nelie Erasmus
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