The troubled North West municipality, which is based in Brits, borrowed millions of rand from the PIC in the 1980s, apparently to fund investments, but has failed to repay the money.
At the time the loans were granted, the then Brits town council was controlled by the Conservative Party.
It now appears inevitable that the municipality will have to pay back the money after a scathing Supreme Court of Appeal (SCA) judgment found that the loans were not unenforceable due to failure to comply with the Local Government Ordinance 17 of 1939.
In its arguments, the municipality claimed that the loans were unenforceable because the former Brits town council did not have the written consent of the administrator of the then Transvaal and that consent was never granted.
Madibeng said Brits had acted without authority when it raised the loans, but the SCA found that there was no merit in that claim.
“The conduct of Madibeng was beyond the pale. As an organ of state it is required to act ethically, and has failed dismally to do so in this matter,” said Judge Clive Plasket’s judgment.
The PIC issued a summons against the municipality in March 2010, demanding payment of nearly R320million, including interest.
By the end of June 2015, the debt had increased to more than R772m. The municipality’s budget for the 2017/18 was more than R2.6bn.
Brits raised short-term loans at favourable interest rates from a number of institutions to invest the funds on the capital market, hoping that returns would outperform the cost of the loans, but this did not happen.
In August 2016, former Pretoria High Court judge Mabel Jansen found that the PIC’s loans were valid and that the municipality’s defence was without merit and a mere dilatory defence.
The PIC had approached the high court to force the municipality to repay the loans.
The municipality appealed to the SCA but its appeal was dismissed on Friday.
DA Madibeng caucus leader Eddie Barlow said the municipality’s debt to the PIC now stood between R900m and R1bn.
He said the struggling municipality had spent about R1m fighting the matter.
According to Barlow, Madibeng cannot service repayments on either the capital amounts or the interest. “I cannot see any light at the end of the tunnel,” he said.
Barlow said R500 000 had been budgeted to investigate the PIC loans about four years ago, but the municipality did not have the money to fund the probe.
Madibeng has previously filed a counter-claim of R15m, including interest, against the PIC, citing unjust enrichment.
It claimed that the R15m was the amount it had paid the PIC in respect of what it termed its “purported obligations” towards the corporation to service the loans.
Madibeng spokesperson Tumelo Tshabalala said the municipality was not in a position to respond, but was studying the judgment.
“We will brief council on the outcome, and then the way forward will be determined,” he said.
Two weeks ago, Auditor-General Kimi Makwetu found that fraudulent credit cards were opened in the name of the municipality and that unauthorised monthly deductions were made from its bank account.
Makwetu found that these transactions were not identified by the municipality’s system of internal control such as the monthly bank reconciliations.
Madibeng was among the North West municipalities that contributed the most to the irregular expenditure of R12.2bn.
Three municipalities contributed to 55% of the irregular expenditure.
These were Rustenburg (R983.5m), Ngaka Modiri Molema district (R827.8m) and Madibeng (R561.9m).