The City of Johannesburg is owed R12.1 billion by big business, government entities and households, due to the billing crisis that plagued many residents for more than a year-and-a-half.
A recent National Treasury report into local government revenue and expenditure found the city was owed R12.1 billion at the end of June. Of this amount, 73.4% - or R8.9 billion - was overdue for more than 90 days.
A year ago, the city was owed R8.4 billion, of which R6.9 billion - or 81.7% - was more than 90 days overdue. The report says the city's debtors' book grew 44% year-on-year from the fourth quarter of last year.
The R3.6 billion leap in uncollected debt - the largest jump out of any of all the municipalities - has been blamed on post-implementation issues with the city's migration to a SAP system.
Johannesburg started moving its disparate legacy systems onto a SAP platform, through a project code-named Phakama, in November 2009. The move, at a cost of more than R650 million, was wrapped up in June last year.
However, about 65 000 account-holders were affected by incorrect statements as a result of the move. Many residents complained about grossly over-inflated bills, inaccurate meter readings, illegal disconnections, and a lack of service from the city's call centre.
Lion's share
Treasury's report says debt to local government entities, including municipalities and large cities, amounted to R64.6 billion at the end of June.
Of this amount, the largest component of outstanding consumer debt relates to households, which account for 63.3%, or R40.9 billion. National and provincial government's debt represents 4.5%, or R2.9 billion.
Of the R64.6 billion owing to local government, the bulk is owed to municipalities across SA, which amounts to a total of R36.6 billion. At R12.1 billion, Johannesburg's debtors' book accounts for about a third of all the amounts due and is the biggest debt listed in Treasury's report.
Debt due to municipalities increased 19.7% year-on-year, amounting to an additional R6 billion by the end of the fourth quarter. The city of Johannesburg represented more than half of this amount, as its book grew R3.6 billion during the same period.
Treasury says, in future, “municipalities will have to report on the different components of their consumer debts to ensure they are actively managing their debtors, which includes making the necessary provisions for the write-off of irrecoverable debt”.
Toxic mess
Democratic Alliance shadow finance MMC Patrick Atkinson says the bulk of the leap in the city's uncollected debt is because of the billing crisis. “The toxicity at the centre of Johannesburg is the billing crisis. All the financial problems can be linked back to that.”
Atkinson, who sits on the city's finance committee, says the year-on-year jump is “actually quite mind-boggling”. He argues the uncollected debt has pushed the city into a position where it has “effectively” run out of money.
The jump in overdue amounts is directly linked to the city's implementation of project Phakama, says Atkinson. He explains residents received “strange bills” and the city halted its credit control activities in April while it tried to sort out the mess.
In addition, says Atkinson, collections became more difficult as consumers were not always willing to pay their accounts during the billing debacle. This led to collection rates dropping to 83% when they should be at 95%, although the city has improved its collections towards the end of the year, he adds.
According to the city's 2009/10 annual report, “revenue collection exceeded expectation with a city-wide total collection of R16.5 billion at a percentage rate of 92.7%”. It says this was due to multiple interventions to improve collections. However, a Standard Bank report argued a concrete collections rate could not be determined.
Atkinson argues about two-third of the R12 billion cannot be collected because it is either too old, or relates to grossly inflated bills which were sent out in error as the city battled with post-implementation issues with project Phakama.
Most of the overdue amount is owed by private individuals, while big business and government entities also have outstanding amounts, notes Atkinson. As a result of the uncollected debt, the city has had to increase its borrowings, he argues.
ITWeb unsuccessfully attempted to get comment from the city this morning.
Stan Maphologela, deputy director of customer communication in the city's revenue and customer relations department, previously said the city did have challenges with the post-implementation phase of SAP.
These included the interface between the billing system and the deeds office, which affected property transfers; the interface between the credit control management system and the SAP/billing system; and in some cases the amount of electricity and water used did not match what was billed.
“All these issues have been prioritised and addressed,” said Maphologela. “We have started to realise the benefits of the new system, and its robust nature to handle the complex and dynamic business operations of the nature such as the City of Johannesburg.”
Maphologela added that benefits are never “realised” in the first year of an enterprise resource planning system implementation.
However, the city has seen an improvement in that properties that had not been billed for a long time were now receiving invoices, the number of estimated statements has been trimmed and the city has a “single view” of its 1.3 million account-holders, he noted at the time.
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