Broke WUC breaches P140m loan deal again
Mbongeni Mguni | Friday October 13, 2017 13:06
According to the WUC’s financials for the year ended March 2017, the Corporation was again unable to maintain a debt service coverage ratio agreed to with the EIB when the loan was first made available nine years ago. The ratio measures an organisation’s ability to service its debt and the level of pressure on its cash-flow.
According to the WUC’s financials released yesterday, the Corporation owes the EIB P36.6 million from the original amount borrowed in 2008. A recall by the EIB would require the WUC to pay the outstanding amount immediately, instead of by 2023 as the original loan conditions state.
The latest loan contract breach comes as the WUC continues to run losses associated with the costly takeover of Water Affairs Department’s mandate under the Water Sector Reform Programme (WSRP). The WUC’s books show deepening losses as the corporation took more villages on board under the WSRP each year, as the growth in its operating expenses heavily outstripped revenue growth due to non-cost reflective tariffs.
The WUC posted a loss of P137.6 million for the year ended March 2017, from a profit of P119.4 million in the previous year. However, the 2016 profit was only made possible by a P388 million tariff subsidy, without which the WUC was facing a mammoth loss of P268.6 million. The Corporation’s auditors, Deloitte singled out an increase in the WUC’s debts as a “key audit matter” noting that the overdue debt had “increased significantly”.“The determination of the doubtful debts provision involves a significant amount of judgement and estimation. With the increase in the Corporation’s debtors’ book, the level of overdue debt has increased significantly,” the auditors said.
Deloitte’s statement follows concerns raised by the Auditor General, Pulane Letebele, in her last report. Letebele said the breach of the EIB contract raised the threat of a loan recall. “In response, management acknowledged the auditors’ observation and stated that EIB was not amenable to revising the contract clause. “However, the loan was guaranteed by Government and the Corporation had never defaulted on the instalments,” the Auditor General noted. While government’s support is guaranteed for the WUC, public revenues are under pressure going forward with an P8 billion budget deficit projected for next year. In the years since the WSRP, former WUC executives have blamed the initiative for losses and poor staff morale, while citing low government support. The WUC did not receive a tariff subsidy for the 2017 financial year. “It is of utmost importance that WUC is established on a financial sustainable basis, but at the same time, water tariffs should be affordable to all.
“During 2014, it became apparent that the WSRP had taken its toll on the various aspects of the Corporation’s operations, financially and even service levels that WUC was once famed for,” WUC chair, Matome Malema wrote in a previous annual report.
In the same annual report, former CEO, Godfrey Mudanga noted: ““Failure to implement the funding model for the WSRP as had been agreed resulted in the corporation’s balance sheet going down drastically as it funded the reforms.
“This rendered the once financially stable WUC, a financially struggling organisation.”
Last September, current CEO, Mmetla Masire told a parliamentary committee that the Corporation needed an annual subsidy of P350 million.