NORTHERN FEDERATION OF RATEPAYERS

norfedra@barmas.co.za

9 May 2011
BE INFORMED - BE INVOLVED

CITY OF JOHANNESBURG

We have not been able to clarify the financial status of the Johannesburg
Municipal structure. The information available to us is incomplete
however the Financial Mail of 15 April 2011 published a comprehensive
report on the City of Johannesburg which gives information on the City’s
financial position (see Shock Sheet). We believe that the provision of
transparent and reliable financial reporting is an urgent and immediate
requirement. The current difficulties are largely attributable to the
inappropriate appointments of political appointees rather than
professional people as well as corruption and fraud which the City’s own
risk analysis rates as the number 2 risk to the organization.

SHOCK SHEET 9 MAY 2011

The Shock Sheet focuses on the operation and financial state of City
Power.
In our opinion the situation is disastrous.

Please pass the information to as many people as possible

Note:
• Johannesburg has the most expensive business electricity
costs in the country.
• Small business supplied directly by City Power pay 100%
more for their electricity than Eskom’s direct customers
• ProTacon (a consulting company specialising in electricity matters)
reports that the proposed tariffs for the 2011/12 financial year
would result in the overall average mark-up by City Power on bulk
supply from Eskom to be in excess of 90%.
• There is extensive cross subsidisation so that although the proposed
average tariff increase is 27.6% various sectors will see a higher
increase. The following figures apply to conventional metering.
• Domestic – using 1000Kwh (summer rates) R895.09 increase to
R1145.34.
(winter rates) R1208.64 increase to
R1568.64.
• Business – using 1000 Kwh (summer rates) R1214.41 increase to
R1543.80
(winter rates R1689.71 increase to
R2166.45
The complete ProTacon report which covers other tariffs, including large
power users, and comparison costs can be obtained from Norfed on
request.

NORTHERN FEDERATION OF RATEPAYERS

norfedra@barmas.co.za

BE INFORMED - BE INVOLVED

SHOCK SHEET 9 MAY 2011

Kane Berman, Chief Executive of the S.A. Institute of Race
Relations says that among South Africa’s many problems “the
country’s commercial capital is run by people who are out of their
depth.”

So prepare yourselves for more dark times ahead as the City of

Johannesburg’s finances are deeply in the red and services continue to
decline.

Municipalities begin their financial year in July – Johannesburg has a R28.5

billion budget for the year to 30 June 2011.. As at the first half of the
financial year –
31 December 2010 – Johannesburg’s revenue collection was R2 billion
less than forecast, R10 billion owed in unpaid rates and services and an
additional
R2.6 billion was owed to the bank. (Financial Mail 15 April 2011)

Kane Berman states “I suspect affirmative action and cadre

deployment policies have done more damage to South Africa than
most people will admit. Can you really run a modern industrial
state if you would rather leave posts in the public sector vacant
than appoint whites to them? The major victims of this folly have
been blacks rather than whites.”

CITY POWER
In the first quarter – July to Sept 2010 City Power declared a 40%
electricity “loss” i.e. they received no payment for 40% of the power they
supplied.
Second quarter – October to December 2010 no figure was available due
to the City of Johannesburg’s infamous billing problems and some
accounts not being sent out.

SHOCK FACTS
City Power is staggering along with only half the personnel it needs to
function properly. The staff complement in January stood at 1 714 with 1
700 vacancies.
They need:
2 executives
5 general managers
31 managers
61 specialists
165 professionals
54 supervisors
200 skilled artisans
78 administrators
702 semi-skilled workers
402 general workers

YET, despite having only half the personnel needed to operate efficiently,
City Power spent R22.3 million over budget on salaries and allowances
which exceeded the YTD budget by 7%.

This according to the City Power report was because of the increase in
“overtime” due to the shortage of staff. No mention was made of large
employment packages, performance bonuses and luxury cars which are
believed to have impacted on the funds needed to fill crucial vacancies.

The serious absence of skilled, qualified personnel brings into question the
ability of the utility to perform vital work and indeed its core functions.

Problems

• Theft and vandalism of the electricity network has increased to such

an extent that the internal risk assessment puts this as the number
one risk to the utility.
• Cash flow problems.
• No pre-payment Smart Meters were installed during the current
financial period – July to December 2010. Residents have and are
resisting attempts to install these meters in several areas. (Smart
Meters automatically cut off electricity if anyone tampers with
them.) It is however encouraging that the new City Power MD and
the CoJ Executive continue to openly support the pre-paid meter
roll-out. We understand that the delay in implementation is largely
due to a shortage of funds.
• Losses due to ineffective metering, billing systems, theft, vandalism
and lack of skilled staff are staggering and unsustainable. City
Power’s profit in the first two financial quarters of 2010 was R75
million against a YTD budget of R342.5 million.
• Assessment of municipal taxes and service charges owed to City
Power YTD December 2010.
30 60 90 120 150 180 +201 Total
days days days days days days days

430,516 583,851 247,775 191,740 116,756 71,017 1,352,264

2,993,919

• Some 209 744 customers should have been billed as at 31

December 2010 but only 185 599 were processed. The reason
given for this discrepancy was IT system migration problems
resulting in some customers not being billed.
• Continued over-estimated electricity consumption for a significant
number of users.

Exacerbating the revenue collection problem was the changeover in

December 2009 from Utility Risk Management (URM), who ran a very
sophisticated automated metering system for City Power’s large power
users, to new contractors 1st Otokon who allegedly did not meet tender
requirements.

URM allegedly became estranged from the CoJ because they refused to
pay senior staff in the City Power “financial incentives” if they wanted
to be awarded the contract again. Energy consultant Stephan Dolk said
“the new contractor – 1st Otokon – did not have the technology to
accurately measure and bill large users”. This led to a large drop in
revenue collection and many of the problems remain unresolved more
than a year later.

Residents and ratepayers of Johannesburg have every right to question

exactly what they are getting for the R6.4 billion annual employee costs
and R84 million annual councillors’ remuneration. The City of
Johannesburg is the sole shareholder of City Power. City Power is an
electricity utility company which does not have the structure or expertise
to function effectively.

Ratepayers have every right to question the following–

• The National Energy Regulator, who issues distribution licences and

is responsible for oversight to ensure that the conditions of the
licence are
complied with, have not taken action to protect the City from the
consequences of a failed utility company.
• City Power is a Corporate, it has a Board of Directors and
Independent Auditors both of which appear to have failed in their
responsibilities to provide oversight. Questions need to be
answered regarding their apparent lack of action to ensure
compliance with the company rules and procedures, statutory
regulations and best corporate practices.
• Has the City of Johannesburg Oversight Committee reported
accurately and timeously on the corruption and mismanagement of
City Power which has led to the present situation?
• Finally the political structure. Corruption within City Power was
reported to senior management in the CoJ and opposition parties
several years ago. Why was no action taken? It appears to have
been a conspiracy of silence.

The oversight bodies who are there to ensure compliance with legislation
and to protect the interests of the City are not functioning effectively. The
cost of incompetence and corruption is not sustainable. Property and
business owners should take note that, unless a strong ratepayer/business
lobby is established to make this R6.4 billion pyramid accountable,
property values will drop and business will relocate.

The proposed City Power tariff increases reflect the cost of incompetence
and corruption with those who do pay and who are on the City’s data base
being required to subsidise the many who take advantage of the chaotic
situation.

The information contained in this Shock Sheet is available to all

Councillors and the question should be asked as to why, if
Councillors are there to protect the interests of their voters, was
this information not made public?

****************
Aristotle said “Tolerance and apathy are the first signs of a dying
society.”