The R500 million loss City Power is expected to make this financial year not only poses a major risk to Joburg’s finances but is also set to reduce economic activity and employment.
This is contained in council documents adopted this month ahead of Joburg’s budget speech, which showed that the municipal entity would lose R511.5m by spending significantly more than it has.
The city acknowledged that this could be detrimental to its economy and prospects of job creation.
“Electricity and energy challenges remain a major risk to the economy and municipal finances in general that need to be singled out as there are general secondary effects such as reduced output, employment and economic activity,” the document's executive summary stated.
It added that City Power was “grappling with non-technical losses” without stating what those were; that small businesses would continue to be affected the most by the lack of supply, but that the city was exploring options to mitigate against the impact.
“It is hoped with the planned infrastructure investment, stability in supply to the residents will be improved, while gauging the optimal solution in the long run.”
In total, City Power expects to generate revenue of more than R17.2 billion, but spend more than R17.7bn, which will lead to the R511.5m loss; according to calculations adopted by council.
This comes as Joburg announced increased electricity tariffs of 6.23 percent for the current fiscal year, and it’s expected to peak with a 10 percent hike in 2022/23.
City Power is also embroiled in a leadership crisis as its chief executive, Lerato Setshedi, was placed on “special leave” last month while investigations into alleged corruption are being conducted.
The Star sent questions to the city and member of the mayoral committee Jolidee Matongo’s office.
Responding on their behalf, City Power spokesperson Isaac Mangena said he was not aware that the entity would lose R511.5m as their internal records did not show this.
Mangena, however, conceded that the entity's threat to sustainability was distribution losses caused by “meter-to-cash” and administrative inefficiencies, as well as illegal connections.
“The focus of City Power is on arresting distribution losses and as such its revenue strategy is hinging on distribution loss management to reduce, in particular, its non-technical losses as these are a direct link to the municipal operations and the behaviours of the electricity users.
“City Power recognises the need to manage our non-technical losses in line with other well-performing municipalities” Mangena said.
He added that City Power was confronted “by poor financial performance” but that it had improved in the last quarter of the previous fiscal year by exceeding its target for services charges.
“City Power achieved a profit for six months during this year. Something that has not been seen in a while. As a result the year-to-date loss has dropped from R741 million in quarter 1 to R208 million as at June 30,” Mangena said.
“City Power takes direction from its board and shareholders. A properly functioning board is in place since their appointment at the AGM of the City of Johannesburg. The entity has turnaround initiatives put in place to address its historical financial woes.”