A municipality flagged by the auditor-general for financial mismanagement and poor service delivery in the Free State has been ordered by the high court to settle a debt of more than R1bn owed to the department of water and sanitation.
The case stems from the minister of water and sanitation taking legal action in early 2017 against the entity for the nonpayment of its water use charges and water research levies which had accumulated to an “astronomical amount in excess of R1,015,000,000 over decades”.
The municipality defended the action. Six years later, after a declaratory order by the high court, it entered into an agreement with a special master appointed by the court to investigate and determine the true quantum of the municipality’s indebtedness and take remedial action.
They agreed the municipality’s failure to pay water use charges under the National Water Act and water research levies under the Water Research Act was inconsistent with the constitution, threatened residents’ right to access to water and that the debt be repaid.
They also agreed if there were insufficient funds to settle the debt in a single payment, it could be settled via an equity share paid to the municipality on an annual basis by the National Treasury in three tranches. The municipality would use 11% of each tranche of its equity share towards settling the debt.
Municipalities receive an equitable share of national revenue to fund basic services and operations.
According to a judgment handed down on the dispute by the high court in Bloemfontein, the special master was awarded the power to “call for the production of all documents and material relevant to the dispute from the parties, call for witnesses to present evidence, examine the financial documents and information, and was furthermore granted access to the parties’ financial statements, records as well as accounting software programs.
“In addition, the special master had to determine the liquidity of the municipality.”
The investigation should have been concluded within six months. It stalled. In an affidavit dated January this year, the special master said the probe could not be concluded due to:
- the non-availability of documentation;
- poor co-operation;
- an almost non-existent billing system; and
- poor collections by the municipality.
“Municipalities finance most of their expenditure through property taxes, user charges and fees. However, municipalities often fail to recover these taxes and charges,” read the judgment.
The municipality has displayed bad faith by obstructing the task and obligations of the special master
— Judgment
“Based on the findings, the municipality’s operations, service delivery and financial health are in a dire state due to ‘self-inflicted’ actions and lack of critical actions.
“A failure to manage and maintain the water infrastructure and the overall collapse of general and internal controls concerning income generation, water inventory management, debtors’ management and related data integrity together with irregular and unauthorised expenses have caused the municipality’s inability to repay debt and operational inefficiency.
The court added: “There is no general principle of law of contract that absolves a debtor from liability if they are unable to pay. The municipality has displayed bad faith by obstructing the task and obligations of the special master.”
The municipality was ordered to make payment of 11% of its equitable share, paid by the National Treasury, to the special master — less an amount of R10m paid by the municipality.
In addition, the municipal manager was held responsible, in his personal capacity, should the municipality fail to make payment. The municipality was also hit with picking up the costs of litigation.
The municipality has been singled out by the auditor-general over several years for poor service delivery and financial irregularities and fruitless expenditure.
The portfolio committee on cooperative governance and traditional affairs earlier this year, during an oversight visit there, heard it was bankrupt with a deficit of R1.5bn.
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