An embattled Eastern Cape municipality has spent more than R4.6m on legal costs and civil claims since the start of the financial year, while debt skyrockets.

The legal woes come as the Graaff-Reinet based Dr Beyers Naudé municipality struggles with rendering basic services, which has seen some areas heavily reliant on borehole water for almost five years. It has also been unable to provide electricity in some instances, unable to collect revenue from those who owe it money, service its rising debts, or even pay third-party contributions to revenue service Sars, nor employees’ pension and provident funds.

These are just a few of the revelations the municipality made at the portfolio committee on co-operative governance & traditional affairs (Cogta) on Thursday.

“During the current financial year, to date, R4,638,004.23 has been spent on legal costs and civil claims. Looking at the amounts paid for litigation thus far, it is clear that the municipality would have been in a much better position if these funds could have been used for service delivery,” said SA Local Government Association chief of operations Lance Joel.

The municipal officials say the huge civil claims against the municipality have mainly been coming from the Ikwezi local municipality. However, they claim to have since put systems in place to limit its legal risk. 

The third-largest municipality in the country was amalgamated in 2016, but this has seemingly not yielded positive results, charged MPs — many who were taken aback by the revelations.

Joel could not allay those fears.

“The only beneficiaries of this amalgamation, according to my own analysis, are creditors and employees because ... the municipality has been focusing only on paying creditors and workers,” he said.

The municipality said it had since appointed a panel of legal practitioners to help with litigation, legal advice, drafting of contracts, conveyancing and debt collection. Now it has 41 cases.

The municipality was among 10 in the Eastern Cape which auditor-general Tsakani Maluleke last month flagged as being on the brink of collapse. She said that based on their financial positions, the AG's office did not see the municipality being able to continue with its day-to-day operations in the near future.

The municipality's total inherited debt is R65,263,564.11. Among its debtors are Eskom, Sars and pension funds.

Salga and municipal officials told the committee that it had put in place several measures to turn the council around, but said the municipality was not spared from the devastation caused by Covid-19.

“Despite laudable efforts by all role players to curb expenditure and increase income, the financial situation of the municipality deteriorated,” an official said.

To address the critical situation, the municipality required a financial injection, they argued.

“This ripple effect resulted in a loss of revenue, thus affecting cashflows. By the end of June 2020, the substantial reduction in economic activity affecting the ability of consumers and businesses to honour their municipal accounts.

“The current economic climate for the country as a whole and more specifically the local municipal region makes it very difficult for the municipality to maintain a healthy financial position,” the official said.

In 2016, the municipality was found liable for damages of R4m after a temporary clerk was sexually assaulted by one of its managers, Xola Vincent Jack. The council was found jointly and severally liable for the loss of past and future earnings, medical bills and general damages.

But in the aftermath, the Ikhwezi council was amalgamated into the Dr Beyers Naudé municipality. The latter took the case on appeal.

The Makhanda high court ruled in April that the municipality and Jack were in fact liable, and ultimately awarded damages of R3,998,955.02, plus legal costs and fees of expert witnesses. Judgment was delivered on April 13 2021 and payment was due by May 5 2021.

The municipality said it had settled R2m of the total claim and the legal teams agreed that the balance be paid in July.

The municipality said it had already instituted steps to recoup the portion of the damages from Jack.

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