Logic needs to be applied in Eskom in SAA

19 April 2018

Eskom is overstaffed by 66% and the average salary is more than R700 000 a year according to the World Bank. We know this because utility companies produce the same products and their costs and efficiencies can be compared. One can, for instance, work out how many units of electricity are produced and sold for every staff member. The World Bank had a go at this one too and found a similar utility in India which produces about 40 times as much electricity per employee as Eskom does.

Unfortunately, this kind of exercise cannot be done with most of the other SOE’s, Government Departments and municipalities because their products (if any) are all so different, but there is every reason to believe that they may be similarly over staffed, despite the use of computers to do the work formerly performed by an army of clerks. 

The use of pre-payment electricity meters, for example, means that municipalities no longer need meter readers, electricity accounts and don’t have to chase up bad debt, while the job of handling the cash has gone to the corner shop. The same thing will happen when we have a pre-payment system for water.

Many firms that do a lot of administrative work have shed up to 50% of their staff since computers appeared on desks. Typing pools have disappeared and so, for the most part, have secretaries. We don’t need messengers or filing clerks anymore because we use e-mail to move files around and when did you last post a letter? Financial transactions are easy and instant with EFT’s.

In the case of Cape Town, core jobs like the management of on-street parking have been outsourced to the private sector and private contractors are used for a variety of tasks such as refuse removal. Other work which should be a City responsibility has been outsourced to organisations like Wesgro and Green Cape.

Visitors stroll through the town centre and the Waterfront and say Cape Town is a well-run city, but they don’t ask who actually runs it. They would probably be surprised to learn that the V & A is run by a private company and the CBD and its surrounds is managed with considerable help from the Central City Improvement District, as are a host of other CID areas.

Despite all the outsourcing and technology to shrink the workload, the staff of the City keeps growing. In 2007 the City of Cape Town had 21 981 employees. Now it has 26 244 permanent staff, 1 005 temporary staff and 2 486 vacancies.

All this comes at a time when municipalities are under enormous financial pressure. Government grants have been reduced, electricity sales are in decline and water sales will go down too as rainwater tanks have been rediscovered, grey water systems have been installed along with substantial investments in water saving equipment.

The trend will continue because solar panels can compete with the retail price of electricity and even private desalination plants can produce water from the sea at prices below the kind of tariffs we are seeing in Cape Town.

This leaves municipalities heavily dependent of property rates. In Cape Town we have seen a decade of rates and tariff increases above the inflation rate and projections for the next three years continue this trend. How much longer can this continue? People are angry.

We know about the utility death spiral and we must now ask whether the same problem could afflict municipalities.

In the old days there were no alternatives to municipal water and electricity but that has changed and the pace of the change will continue to accelerate.

A friend of mine who bought a very old stone house has spent a small fortune on restoring it and making it a rather special home. His reward has been regular revaluations and increased rates bills. His attitude now is: “I’m not giving the Council any more money. I’m going solar.”

The big issue here is that we have a rating system that punishes those who improve their homes and uplift their neighbourhoods, while those who neglect their houses and tarnish the suburbs in which they live are rewarded with lower rates accounts.

What can we do about it? The first thing is to recognise that the present funding model for municipalities is doomed and we need a new one.

Municipalities deny that they make profits on water and electricity. Don’t believe them. Receipts from electricity and water form the basis of their cash flow and carry a significant portion of overheads. At one stage Cape Town added a 10% surcharge to electricity tariffs “to alleviate the rate burden”. They probably still do it but have found new words to describe the practice. This was acceptable because it extended revenue collection to a much wider range of residents and businesses than just property owners.

Now municipalities increasingly depend on the property owners and an unfair and perverse rating system. Surely we need a rates system which encourages investment and improvements. Moving away from the old system in which rates were based on land values only was a huge mistake.

The second thing we have to do is take a long hard look at what municipalities do and whether it is really necessary. Why, for instance do municipalities have to pass building plans and check on the builders? Surely the architects and master builders should be responsible for their own work in exactly the same way as other professionals are. Evidence that plan scrutineers and building inspectors are unnecessary can be found the V & A waterfront. The City was not required to approve any plans or inspect the building and it turned out to be the best property development in the country. One of the reasons was that there was less interference and fewer costly delays waiting for bureaucrats to make up their minds.

Why do municipalities need property valuers? Everybody knows what their house is worth and they can declare it in exactly the same way as they declare their income for tax purposes.

Once municipalities had a monopoly on the issuing of road worthy certificates for vehicles. It was a disaster and the private sector had to take over. Now we have roadworthy centres and they do a good job. In New Zealand the issuing of driver’s licences has been outsourced to the AA and motorists there now enjoy a good service seven days a week.

We need to look at every service the municipalities provide and ask; “is it necessary?” and “can the private sector do it better?” Then we need to look at over-regulation in a variety of fields. In Cape Town, for instance, we have absurdly strict regulations on outdoor advertising and this creates the need for advertising inspectors and no doubt they will need air-conditioned cars.

We also have to recognise that municipalities have expensive ways of doing things like procurement. In a presentation on the latest draft budget, Cape Town’s Deputy Mayor, Ian Nielson, explained that, in order to prevent corruption, complicated rules have been drawn up and we now have lengthy and complicated bureaucratic processes and that slow things down and make the items they buy more expensive. Private firms can take short cuts and, because they are spending their own money, they make sure they get good value. It’s another argument for farming work out to the private sector.

This brings us back to the high cost of governance and the need to reduce these costs in the face of significant threats to whole municipal funding model. That means downsizing and it will be painful, but is there any other alternative? Bureaucracies that just keep growing are no longer affordable. They simply consume too much wealth while offering too little value.

It is too much to expect the private sector, which has had to take extreme measures such as retrenchments and wage freezes to remain viable, to continue to meet the growing appetite of municipalities and the public service for revenue and above-inflation pay increases every year.

The unions won’t approve of down-sizing and staff cuts, but they do recognise that it is necessary in a business that is in danger of going under. Applying the same logic to the likes of Eskom, SAA and some of our failing municipalities is now essential. A stand has to be made. Where shall we start?

Issued by Dean Le Grange, Media and Digital Co-ordinator, Cape Chamber of Commerce and Industry, 19 April 2018