Cape Town Stadium municipal entity: another SAA in the making

The City of Cape Town has invited interested and affected parties to comment (“input”, as if what the public says makes difference to the fait accompli decision) on the “proposal to extend the functions of the Cape Town Stadium (CTS) municipal entity”.

I’ve written about the stadium before. Its fundamental nature and purpose make it unsuitable for anything other than a venue for a once-off mega sports event that never lived up to its promise of economic benefit for South Africans and hosting cities. This was the event the FBI alleged South Africa bought with $10 million cash in a bag. Even in football-mad Brazil, World Cup 2014 stadium(s) are unused, and a newly-built one is being used as parking garage, a proposal the city considered.

The stadium is a white elephant, a dodo, a “turkey that will never fly”.

South Africans suffer from an especially pernicious form of the exceptionalism disease that imbues sufferers with delusions of grandeur on a grand scale (there’s no cure). You’ll recognise sufferers who, inter alia, claim God personally told them, “You’ll rule until Jesus comes”, and those who believe saying the magic words, “Roll out the red carpet”, will bring wealth of its own volition. Sufferers also believe they have the power to bring the dying and dead (SAA, CTS, ANC, etc) back to life.

I’m not going to repeat my criticisms of the municipal entity in detail, except it does absolutely nothing to change the economic and financial realities: that the stadium is unused (the few events held there are irrelevant to the big picture), unwanted and cannot ever be financially viable. It will continue being a massive financial drain on Cape Town’s ratepayers whoever and however it’s managed.

This is the DA-run city’s delusion: that massaging reality will change the outcome. It’s really a shame because they believe they can do a better job of running the country than they presently do of the stadium.

For 2015/16 the stadium’s total income was R15 million and reported (not actual) expenditure R41 million, for a claimed net loss of R26 million. But employee costs were not disclosed, which added another R20 million. Also undisclosed were other costs, that if included in terms of generally accepted accounting practice, take total expenditure to over R100 million a year. I estimated the negative cash flow is closer to R200 million. (Note the city’s press release states the municipal entity’s staff will increase by six to 44. At an annual average income per person of R300 000, that’s another R1.8 million for an entity that has current revenue of R15 million and making real losses of over R100 million.)

(In June and November 2016 I asked the city for the stadium’s complete financial statements and details about the proposed business plan, including municipal entity. Despite them being obliged to provide it in terms of the constitution and Municipal Systems Act, chief financial officer Kevin Jacoby declined on the basis it’s “simply not available” – clearly untrue – and stated I was deliberately misstating the facts.)

This exorbitant and extraordinary loss makes sense, and the only reason why, they’re undertaking such a costly and risky venture that shall see almost priceless public land being alienated to benefit private, profit-making companies with little to no real benefit for ratepayers. They would not do it merely for a claimed annual loss of R26 million, which is less than the infamous Cape Town Cup flop and a bit more than the mayor’s travel expenses. They’re not spending money to make money; they’re spending money to lose more money, exactly like SAA.

The DA continuously complains about state enterprises and SAA in particular. We’re led to believe they can do a better job of running it (and state enterprises generally) and the country – basically, it’s their election manifesto.

But SAA and its never-ending bailouts exactly resemble the stadium: it’s a hugely expensive, unviable entity, from whichever angle one looks at it, that’s irremediable. Like SAA, changing the stadium’s management structure – board, executive and operating entity – will not overcome its innate, structural problems I and many others have spoken about, not least of all Sail Stade de France that resigned from managing the stadium in 2010 because it was a loss-making entity. Unlike the stadium, SAA, or at least parts of it, can be made viable under the right conditions. But the stadium can’t be broken up into salvageable and non-salvageable parts.

Like the SAA situation and Treasury looking for national assets to sell to pay for the R2.2 billion bail-out, the city intends selling and/or leasing public assets and irrevocably commercialising a beautiful, historical recreational area bequeathed to the city’s people. Are they doing so to save, they claim, R26 million a year out of a total budget of R40 billion? By comparison, recreation & parks’ and libraries’ budgets are R141 million and R50 million respectively. Like most local government services (except profitable electricity), they’re intrinsically loss-making, non-profit public goods. The stadium is only different if, as I believe, its costs are in the region of hundreds of millions a year, an amount the city/DA are trying to hide with sleight of hand.

I said above the DA-run city is delusional concerning the stadium. But perhaps not; perhaps they’re perpetrating a huge fraud on us. In this case, they’re doing so with our complicity because, unlike the scandal surrounding “Gupta-leaks” shenanigans and ANC-initiated SAA, SABC, etc mismanagement and corruption, Cape Town’s citizens are too complacent, indifferent or credulous to question and challenge them.

We’re rightfully outraged about the R30 million allegedly wasted, misused or stolen from a little-known Free State dairy farm. But we cannot rouse ourselves to question and hold the DA to account about the stadium’s costs, which 10 years after its completion, must be approaching R1 billion or more. The municipal entity won’t change that.

Just as SAA defines ANC mismanagement of state assets, so the Cape Town Stadium defines DA mismanagement and incompetence. DA for government in 2019? I don’t think so.

***

Postscript

I suggested what the city should do (but won't because they know everything) about the stadium in my July 2016 article, “A World Cup White Elephant”. Despite it being largely dormant, they're treating it as if it were fully operational and providing full maintenance allegedly because it's a "strategic asset" (why it's so, they don't say). This is irrational, and as we know, a hugely costly mistake.

If it hasn't already been done (they won't say), a life-cycle cost assessment must be conducted that considers in-stadium alternatives (the business plans, the only options the city considered, looked at external alternatives) for maximising use and efficiency and minimising costs of the facility per se. Because the stadium is hardly used (too expensive and there are other more suitable venues) and is a very expensive facility to operate and maintain (like most assets, its annual maintenance cost is a factor/percentage of its build cost, which was R4.4 billion), the operator – the city, or "municipal entity" as they call it – cannot get around this immutable force. So, the only realistic options left are:

1. Mothball the entire facility after removing/securing structure and plant and equipment that are subject to weathering and deterioration without regular maintenance and that can be salvaged and reused elsewhere. The glass roof particularly that needs constant cleaning (at great cost) and repair must be removed. Reduce overall maintenance and security to a minimum except to ensure structural integrity and occupational safety.

2. Close off sections of the facility, ie partial mothballing. (This might not be feasible or effective to reduce costs significantly compared to option 1. This is what life-cycle modelling should reveal.)

3. Demolition, which I'm not in favour of. There would a once-off cost to demolish and rehabilitate the land and incorporate it into the Green Point Park, a wonderful asset. The city would hold a poll – a public consultation, which they must do about most issues affecting citizens – with one question: demolish, Yes or No? I'm against demolition because now that the stadium is there, aesthetically, it adds to the city's architectural identity, of which there are few notable man-made examples (in this regard, Cape Town is not exactly Barcelona). Also, options 1 and 2 allow limited but continued use for events, as a backdrop, etc.

4. Sell/long lease to WP Rugby Union for an affordable amount with some conditions regarding reasonable public access for non-rugby events, respecting the recreational nature of the precinct and non-intrusive commercialisation. The union will need to have some commercial activities within the stadium, but not to the extent the city envisages with its business plan options. WPRU must take over the cost of ownership. But reportedly, original negotiations with WPRU to lease it failed when the city wanted to impose strict conditions. They also baulked at its cost, Newlands is fully paid for and iconic in its own right.

5. Therefore, option 1 or 2 are suggested. For 1 there would be no need to replace, renew or repair plant and equipment that reached or nearing the end of their useful lives. The concrete and steel edifice would be allowed to gradually deteriorate over time in a managed way like the old athletic Green Point Stadium, with minimal intervention to prevent collapse of part or whole. This will hopefully take decades.

6. Option 2 will require minimal, active maintenance with replacement and repair of structure and equipment only in those sections still in use. For both, the stadium may still be used to a greater or lesser extent as the near-derelict athletic stadium was.