Bad debts choke municipalities

Of this, a staggering R12 billion is regarded as irrecoverable bad debt.

Last Friday’s shocking disclosure by auditor-general Shauket Fakie about the extent of non-payment of municipal bills came hard on the heels of the Cape Town metro’s decision last week to cut water and electricity services to major creditors in a bid to recover R3,2 billion in outstanding debt.

In Cape Town, the provincial government department is said to owe the city R79 million for rates and services, Cape Town International Airport more than R50 million, the five-star ArabellaSheraton Grand Hotel R15 million and Western Province Rugby R9,3 million.

Fakie told a parliamentary hearing on municipal finances that the R19 billion figure for 2004 might be dwarfed when the bad-debt provisions of all 284 muni-cipalities were added up.

Also disturbing, he said, was that the figure was increasing year by year as creditors ignored demands for payment.

“This is causing serious problems for municipalities,” Fakie said.

He said it was “quite staggering the provisions for bad debt that are being made” with the average among the top 23 municipalities being 59 percent (R11,4 billion) of total debt.

Their average debt-collection period was 136 days, more than four times the norm in business.

Business was strongly criticised during Friday’s hearing for failing to cough up and pay for services rendered.

However, the companies named by Cape Town’s city council lashed out at the allegations that they owed millions in rates and tax.

“We do not owe the council one cent. The R9,3 million they are talking about has been under dispute since 1997. It arises from a levy that they charged us for traffic services provided during our matches. Together with Western Province Cricket and Two Oceans, we have been in dispute with the council about the matter,” said Western Cape Rugby CEO Theuns Roodman.

“If they are going to publish people’s names in the newspapers for bad debt they must get their facts rights. We do not owe them anything,” Roodman said.

Airports Company SA senior communications officer for Cape Town International Airport Deirdre Hendricks said the airport had contested the “sudden” 900 percent increase in rates and taxes imposed by the metropolitan council in 2003 after a property revaluation.

The company had been involved in discussions with the city on the issue since then.

These were nearing conclusion, but in the meantime the company had paid an agreed provisional sum for the 2004 and 2005 years, Hendricks said. ArabellaSheraton marketing manager Ashleigh Lines said it expected to receive a substantial credit note for outstanding rates after the council amended the valuation on which it based the charges.

Lines said the hotel had been trying to resolve the issue since receiving an invoice for outstanding rates in December.

“The city council has now acknowledged that the rates bill was based on a valuation that was R100 million too high,” Lines said.

Meanwhile, Western Cape’s local government department had its electricity and water reconnected on Friday after it paid R242 000 of a R724 000 debt.

The department’s city centre building was disconnected on Thursday. ‘ Business Day.

June 2006
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