EL's IDZ runs into cash crunch crisis

The top-notch East London Industrial Development Zone (ELIDZ) has run out of money.

The government , from premier Phumulo Masualle to planning and finance MEC Sakhumzi Somyo, were well aware of its cashflow crisis in February.

Responding to Saturday Dispatch media queries, MEC Somyo said R4-million was paid over as a “a rapid response to the situation” and the IDZ business model would “be reviewed”.

Top of the list of concerns at the IDZ this week was meeting end-of-month payments of R5.5-million, including more than a million rand for its 10-member board.

Speaking yesterday on behalf of IDZ CEO Simphiwe Kondlo, spokeswoman Ayanda Ramncwana admitted: “We are facing a cashflow challenge.”

However, she rejected negative bank balance projections said to be at minus R28-million, saying monthly revenue of R7-million was “sufficient to cover our immediate obligations”.

Kondlo will respond in full in an interview in Monday’s Daily Dispatch.

Saturday Dispatch has learned that EL IDZ monthly income is generally only R5.3-million, but can drop to as low as R3-million as rentals owed to the IDZ has ballooned.

Ramncwana went to lengths to describe how the EL IDZ had been left high and dry by senior government departments which had not met their contractual obligations to refund the zone R38-million for building a metal surfac e treatment plant.

She said the plant had attracted six new investments and created 1200 construction jobs and 348 manufacturing jobs.

She expected the R38-million to be paid “within the next week or two”.

Ramncwana explained that a “development finance institution”, which Saturday Dispatch knows is the Development Bank of SA, was supposed to source the money from the jobs fund but there had been frustrating “delays”.

But national Treasury spokesman Jabulani Sikhakhane said yesterday: “The jobs fund could not disburse funds to the project because they have not met the conditions of disbursement which include the submission of audited financial statements and audit certificate from their external auditors in order for the fund to verify expenditure.”

In private correspondence seen by the Dispatch this week, Kondlo berates an employee for his “level of diligence” in trying to satisfy Treasury’s demands for the information.

Kondlo wrote: “If an independent investigation were to be done, we would be found wanting, and we would be accused of having caused our own crisis by not being responsive to the fund requirements.”

The Saturday Dispatch can also reveal that in September, despite facing deficits expected to reach R63-million at the end of this month, the board paid out R7-million in performance bonuses.

This was justified based on their 2013-14 year of business, a clean audit, and that there was no reason at that stage to believe there would be delays in the R38-million payment, said Ramcwana.

As the cash crisis peaked in December, EL IDZ executives paid 89 employees, including themselves, a R4-million 13th cheque, which Ramcwana said was “part of conditions of services”.

Alarm bells started ringing in Somyo’s office when Eastern Cape treasury superintendent-general Marion Mbina-Mthembu sent him a memo dated February 9, in which she stated: “The East London IDZ is faced with a budget deficit of R63.6-million in the current financial year relating to just operating costs, which means that amongst other things, the IDZ will be unable to afford salaries in March.”

Mbina-Mthembu wrote: “The budget deficit, which should have been reported on by the Auditor-General was disguised through the omission or lack of disclosure of cash and cash equivalents in the annual financial statements of the entity for the year ending 31 March 2014.”

Mbina-Mthembu said that lobbying funds from the Department of Trade and Industries (DTI) was “unlikely to be favourably considered as both IDZs have been unable to comply with regulatory requirements, their business models have been questioned by DTI and the effectiveness of their large boards have been a bone of contention for some time.”

Ramncwana, on behalf of Kondlo, yesterday denied the allegation, saying the omission of “cash and cash equivalents” (cash in the bank) from the ELIDZ’s 2013-14 annual report published in August was a publishing error. She said the Auditor-General received all the information.

The entry, which appears in the Annual Review, also published in August and used to market the struggling but state-of-the-art industrial zone, claims that the IDZ had R119.9-million in the bank.

No response was received from the AG at the time of writing.

Figures drawn from Mbina-Mthembu’s memo, and the EL IDZ’s 2013-14 annual report show that seven executive directors increased their basic salaries, allowances and bonuses from a total of R11.2-million in 2012-13 by R4.7-million to R16-million in 2013-14.

These amounts included basic salary increases for the executives from R5.9-million in 2012-13 to R7.3-million in 2014.

And they nearly doubled their allowances from R3.3-million to R6-million last year.

The “compensation” paid to the 12 ordinary or non-executive directors, including BCM councillors Sakhumzi Caga and Pumla Nazo, apparently headhunted to act in their private capacities, rose by a million rand in a year.

Their fees and allowances rose from R386634 (R312985 for fees, and R73649 in allowances) in 2012-13, to R1.4-million (R27542 in fees and R1.030-million in allowances) last year.

This represented a R956149 increase in allowances alone.

The councillors did not respond to queries.