Treasury threat to withhold NMB funding puts salaries and services on the line

The Nelson Mandela Bay municipality is in for a tough December after a hard-hitting letter from the Treasury said it intended to withhold the city’s December payment of equitable share – money crucial to its operation.

The letter told the metro that the National Treasury intended to invoke section 216 (2) of the Constitution if the city failed to deal with more than R25-billion in unauthorised, irregular, fruitless and wasteful expenditure (UIFWE) that dates back more than two decades [since 2004].

It arrived as a new intervention to strengthen service delivery in the metro was announced by Deputy Minister for Cooperative Governance and Traditional Affairs (Cogta) Namane Dickson Masemola, on Tuesday.

Read more: Treasury threat to withhold NMB’s December equitable share over R22bn wasteful expenditure

The section grants the Treasury the power to stop the transfer of funds to an organ of state that commits serious or persistent material breaches of financial management measures.

This constitutional provision is used to enforce accountability and transparency in government finances, and it can be invoked if a state entity fails to comply with laws and regulations governing its financial obligations.

Should the equitable share not be transferred to the city’s coffers, it will struggle to pay salaries and provide free basic services to indigent households – such as water, electricity and sanitation.

The metro ran at a loss in the previous financial year and already had to dip into its reserves due to massive electricity and water losses.

Read more: Nelson Mandela Bay metro runs up a loss of R1.58bn — and hasn’t even paid its phone bill

Battling to achieve its targeted and revised 75% revenue collection rate, the city’s R21-billion budget for the 2025/2026 financial year relies heavily on grant funding, which accounts for about 40% of the total budget.

Cogta Deputy Minister Masemola and senior officials from Treasury visited the metro on Tuesday following a request for support from the city and as part of ongoing engagements and assessments of municipalities by the national government.

The oversight visit comes on the back of the city’s ongoing struggles to deal with expenditure issues, with two recent scheduled municipal public accounts committee (MPAC) meetings postponed due to a lack of attendance by members and some officials.

National Treasury deputy director-general for intergovernmental relations Ogalaletseng  Gaarekwe wrote to acting city manager Lonwabo Ngoqo on 11 November to inform him about the move to withhold the funds.

“This letter serves to notify the municipality of the National Treasury’s intention to invoke section 216 (2) of the Constitution,” wrote Gaarekwe.

Intention to withhold

“Therefore, in line with section 216(2) of the Constitution, read with section 38 of the Municipal Finance Management Act (MFMA), the National Treasury hereby informs you of the intention to withhold the municipality’s December 2025 tranche of the equitable share allocation.

“This step is necessitated by the municipality’s persistent failure to address UIFWE and to implement consequence management as required in terms of the MFMA.”

In December 2024, the National Treasury requested municipalities across South Africa to develop an action plan, setting out a procedure to process the UIFWE balance up to 30 June 2024 by the end of  August 2025.

The plan of action was also meant to outline the process for establishing and appointing members of the disciplinary board, and investigating the backlog of financial misconduct referrals to the board in a bid to implement consequence management.

Earlier this year, Finance Minister Enoch Godongwana wrote to Nelson Mandela Bay Executive Mayor Babalwa Lobishe, asking her to outline progress made in dealing with the persistent failure to address and prevent UIFWE.

Godongwana also asked Lobishe to provide reasons for the non-compliance with the MFMA, among other regulations.bIn the letter, Gaarekwe acknowledged efforts employed by the city, which include the revival of the existing UIFWE policy, the centralisation of supply chain management documents and the development of an action plan.

“While the municipality has taken steps to address the ongoing incurrence of UIFWE, the core issues of accountability and substantive reduction have not been adequately addressed,” Gaarekwe said.

The city has been given until 1 December [14 days from receipt of the letter] to state why the Treasury should not withhold the equitable share grant fund.

The Treasury’s analysis of the city’s critical challenges includes:

• Misinterpretation of limitation of scope: The proposal to treat R2.6-billion in expenditure under limitation of scope as a category distinct from UIFWE is not consistent with the MFMA;
• Absence of consequence management: The response is silent on any specific actions taken to hold individuals, officials or councillors accountable for the incurrence and accumulation of the  irregular expenditure;
• Insufficient progress: The write-offs completed so far are minimal in relation to the overall UIFWE balance, and the proposed deadline of December 2025 to deal with the limitation of scope does not reflect the urgency the situation requires; and
• Inconsistent reporting: The assertion that no UIFWE was recorded in the third and fourth quarters of the 2024/2025 financial year on the Muni eMonitor system is difficult to reconcile with the large historical balances and persistent challenges.

Gaarekwe said that based on the 2024/2025 unaudited annual financial statements, the metro did not process any UIFWE in terms of the MFMA.

“This means there was no reduction of the UIFWE, hence the municipality does not meet the 75% reduction criterion as outlined,” said Gaarekwe.

“Whilst the municipality has reported that a disciplinary board is in place, there is no information on any investigations conducted by the board during the 2024/25 financial year.

“This indicates that the municipality is not implementing consequence management. The failure to reduce the 2024/2025 UIFWE total balance demonstrates continued non-compliance with section 32 of the MFMA,” Gaarekwe said.

The ministerial oversight visit was held behind closed doors. However, Masemola briefed the media on the support to strengthen the city’s governance in terms of section 154 of the Constitution, after the city solicited the Treasury’s help.

“The metro said they require support on finances because they have a problem with expenditure to the extent that grants have not been well spent, and run the risk of having … grants withheld.

‘Weak internal controls’

“Additionally, they have the highest UIFWE in SA, which stands at R25-billion, which requires a very serious intervention for it to be addressed, and that’s one of the areas they requested we focus on.

“It’s about weak internal controls in supply chain management, contracting acquisitions and design management.”

Masemola said a team from Cogta would be deployed to the city by the first week of December. The team would be stationed at the finance and human resources directorates, with specialist engineers to assist in unlocking service delivery.

“This team will be announced in a council meeting for it to adopt the support brought, so that it’s able to work seamlessly as it assists to improve the conditions of this city.

“Role players in this intergovernmental support will come together and come up with a turnaround plan that will respond to all the issues raised.”

Lobishe said the meeting had been fruitful and required everyone to work together for the betterment of the city.

“MPAC took a decision in January to present a plan to deal with the UIFWE, and every second week they meet to address this escalating R25-billion UIFWE.

“We are waiting for the committee to process it to council so we can conduct the necessary write-offs to address it.”

Asked about the two postponed MPAC meetings that delayed the addressing of the unauthorised, irregular, fruitless and wasteful expenditure, Lobishe said council speaker Eugene Johnson held a meeting with the members of the committee to emphasise its importance, especially when putting the equitable share at risk if they failed to deal with the UIFWE.

The MPAC committee is expected to convene on Wednesday [today]. DM