Durban - The eThekwini Municipality is behaving like a “teenager with a credit card”, recklessly seeking a R1 billion loan to fund its capital budgets for the 2015/16 financial year.
A further R2 billion is required for the following two financial years.
This was the reaction of DA councillors in the municipality’s finance and procurement committee on Thursday after hearing about plans for the city to seek the loan. They complained this was sure to cost already burdened ratepayers in the long run and the city was seeking the amount to prepare for the hosting of the 2022 Commonwealth Games.
The games are expected to cost R6.5 billion, with funding to come from the city, provincial government and national government.
In March this year Nedbank lent the municipality R1 billion.
A report before the committee indicated that the municipality needed R5.9 million for capital budgets but was short of R1 billion. The municipality would need a similar amount loaned for the next two financial years, the report said.
The DA’s protests were shot down by ANC councillors who argued that the party had no reason questioning the loans as it “had not approved the city’s budget”.
According to the report, the loan “will be to ensure that critically needed expenditure continues and the service delivery programme is not disrupted or postponed, with undesirable consequences, as the bulk of capital budget is spent on basic service delivery type projects”.
The process of obtaining the loan will begin with the city advertising a request in the next month and conclude with a “draw down loan” in April next year. The provincial and national treasuries would have to approve this loan.
City treasurer Krish Kumar said although the loan was new, it had been budgeted for.
“This committee asked us to come up with a clear process that we’ll be following in terms of the budgeting and how we actually roll the project out. What we have done is we have given you a timetable in terms of how it will be followed,” he explained.
He said the “operating budget that is allied to this has been taken care of”.
“We have ensured that the tariffs put out actually covers the cost of borrowing. It is not an additional funding source that has to be looked for in terms of repayments. It has already been factored into our budget and tariff structures,” he said.
But the DA leader in the province and eThekwini caucus, Zwakele Mncwango, was not convinced.
According to the municipality’s budget statement for August, the city’s debt stood at R10.2 billion, excluding the proposed loan.
He said: “With this loan, it then goes to R11.2 billion. If you service this debt, an accounting formula that we use is the gearing ratio. The gearing ratio is dividing your assets with what you owe people.”
Mncwango said the loan would put the city’s finances in a precarious position.
“National Treasury’s (gearing ratio) benchmark is 45%. You shouldn’t exceed this. According to this report, our gear ratio is currently 35%, excluding our capital grant – meaning we are closer to the 45%.
“Once the ratio creeps towards 45%, it becomes difficult for banks to give you a loan. If the municipality was to face a cash crunch, it would be in a serious financial crisis. The city can be bankrupt. It would now mean we owe more than the assets we have.”
He said the danger was that the municipality would be “forced” to increase rates, as this was the “easy way out to raise this money to pay back the loans”.
The Mercury