This is part 3 of the series 'Cape Town Stadium: World Cup to White Elephant'.
The true cost of the stadium the city does not want us to know
Annual costs of stadium
Six
weeks after I first asked mayco member for events Garreth Bloor, the city
finally denied my numerous requests for Cape Town Stadium’s expenditure and
answers about its cost, management and future plans.
On
Friday June 17 chief financial officer Kevin Jacoby told me in an email he
personally was in charge of all aspects of stadium management, and the
information I wanted was ‘simply not available’.
The
following day, in response to my email requesting reasons, he said they will
not give me any information. As to my suggestion of a few days before
that I ‘may’ – note the conditionality – make a PAIA application if the
information – by then six weeks after I first asked – was still not
forthcoming, he irrationally and contemptuously suggested I make a PAIA
application for information he already said does not exist.
Jacoby
quoted the MFMA, but was unable to point out which section of that act or any other
legislation authorised their refusal. In fact, there are no grounds to deny me information
or refuse to elaborate on the consolidated financial statements to which he referred
me. Jacoby’s and the city council’s conduct is illegal. (I copied the mayor,
mayco, city manager and other officials my final response rejecting their
position.)
Note:
All those who believe the DA, which takes the ANC government to court at the
drop of a hat for crimes and misdemeanours, is not beyond breaching the law
themselves, are badly deluded.
Jacoby
contradicted Bloor, who weeks before, assured me the information was available.
On
May 31 Bloor sent me “Plan 2015/2016” expenses, which I accepted as complete,
with the promise of future assistance. But I learnt the schedule was, in fact,
the doctored, incomplete budget and not the actual, historical figures I had
requested.
Among
the information Jacoby claimed is not available:
*
The number of the stadium’s direct staff, and its management team.
*
Reasons for high employee, consultants and legal costs.
*
Explanations for cleaning and maintenance costs.
*
Cost of municipal services (water, electricity, etc) and public
liability insurance (the latter is mandatory under the Safety at Sports and
Recreational Events Act 2010).
*
Annual capital and planned replacement/overhaul costs over the
next 10 to 20 years.
*
If the city investigated in-stadium cost-saving/efficiency
alternatives.
*
City departments involved in the stadium’s management.
*
If the stadium is ring-fenced as a cost centre, and the budgeting
method used.
*
Explanation of ‘sponsorship’ costs, and if the Cape Town Cup’s R28
million cost came out of the stadium’s budget.
Very
important: allegedly also not available are details about the significant
financial, legal, regulatory, city planning, etc implications and the progress
status of the business plan option. Note the city is, in fact, already
proceeding with this option having secured zoning approval to commercialise the
stadium precinct and Green Point Park.
Here
are the stadium’s expenses for 2015/2016. The first section (R41.2 million) is
from their budget. Income is R15 million. (I would liked to have used Newlands’ expenses as
a reasonability test, but Western Province Rugby did not respond to my request.)
Professional
& consulting fees R 2
556 963
Legal
costs 3 000 000
Security
4 196 145
Repairs
& maintenance 16 103 987
Grading
sport field 1
117 109
Sponsorship
- events 2
963 110
Cleaning
7
306 253
Other
operating expenses 3
965 340
Sub-total 41
209 207
My
estimates of direct, relevant costs: not disclosed (‘unavailable’;
non-existent):
Salaries
& wages (calculation ex SDL) 14
725 554
Municipal
services & levies – water, etc* 88
000 000
Public
liability & event insurance* 24
000 000
Total 167 934 671
Not
included above but must be factored as direct, relevant and material costs are:
*
R28 million for the Cape Town Cup (2015/2016 cycle only).
*
Annual capital costs (equipment, computers, etc), say R2 million
to R5 million a year.
*
Provision for the replacement and rehabilitation of integral
equipment – generators, pumps, air conditioners, etc in 10 to 20 years when
they reach the end of their useful lives. It’s hard to estimate without sight
of the asset register, but Lombard’s summary of capital outlay helps. Allow an
annual financial statement provision of R20 million a year for 15 years at
today’s cost.
*
I also believe the stadium’s maintenance costs are understated.
Lombard quotes 2% to 3% of project cost – say, R88 million (2%) a year, not the
R16 million disclosed, i.e. an understatement of R72 million in the official
record.
If
we include these deliberate omissions from the official record, the stadium’s
annual expenses, capital costs and provisions are R290 million (2015/2016)
including Cape Town Cup expenditure, and R260 million for all other years.
If
we accept the stadium’s revenue for 2015/2016 is R15 million (given) the net
loss for that year is R275 million, not the official R25 million.
Shocking true annual costs
The
details of the shocking, true annual cost to the ratepayers of the stadium are
hidden under nebulous departmental categories in the consolidated annual budget
and financial report. Good luck finding it.
This
must be the only explanation why Jacoby et al stalled then refused point
blank to give me information or tell me where I can find it in the city’s
consolidated financial statements, a reasonable request others before me have
made. Of course, if the city disputes my figures, they must reveal the
stadium’s complete financial position.
Worse,
the city has not learned from the Cape Town Cup debacle on which it wasted R28 million
of ratepayer money with no political accountability, another issue the DA is
allegedly passionate about.
But
they are determined to expose ratepayers to another speculative commercial
venture costing an unknown amount, but definitely in the hundreds of millions
(according to Jacoby, the financial details are ‘simply not available’, i.e.
non-existent).
The
stadium’s official figures do not add up. Let’s say we accept the net loss of
R25 million in 2015/2016, a typical annual figure they reported in the past. Garreth
Bloor (IOL, 3/01/2015) says they can further reduce this loss with revenue from
corporate naming rights that would secure between R5m to R10 million (a year?),
that is, a net loss of between R20m to R15 million.
If
this is the case, why would they enter into a risky, speculative commercial
venture per the business plan model that will cost a significant amount of
money – hundreds of millions or perhaps couple of billion of rand (figures are
‘unavailable’) – and sell valuable city land near the Waterfront to cover a net
loss of only R20 million, chickenfeed in terms of the city’s budget?
Why
are they determined to spend us further into debt? Other services – libraries, community
halls and sport fields – are also ‘loss making’, with little to no income, but
we don’t see desperate attempts to provide ‘revenue’ streams for them.
What
is the motive behind the business plan? Either there is a hidden agenda to have
developers benefit in line with the DA’s ‘red carpet’ approach to developers –
certainly ratepayers will not. Or the stadium’s expenses are being grossly
understated.
Having
performed an analysis with figures provided and using reasonable, industry benchmarks
and some intelligent estimates, I believe the stadium’s true costs exceeds R200
million a year.
Unprofessional and incompetent management
Cape
Town Stadium is a R4.4 billion asset. Excluding road upgrades, it’s probably
the single largest capital outlay in the city’s recent history. It’s the city’s
most visible – ‘iconic’ – manmade structure. However, unlike other projects, it
has created a huge amount of controversy, which shows no signs of abating.
Water, sanitation and electricity departments, to name three, are
managed and operated by highly qualified people – registered engineers,
quantity surveyors, etc. However, the city is managing a very expensive asset –
the stadium – like it was the local community halls or swimming pool.
My experience over the past six weeks indicates the stadium’s
management is diffuse, poorly coordinated over disparate compartments, with
each doing their own thing on different aspects of it.
What purpose is a stadium director who is unable to answer
accounting, operations, strategic and asset management questions? As he
inadvertently told me, the authority and capacity to answer these questions lie
with an inter-departmental structure.
The stadium is being managed by a committee, with poor and
oblivious public oversight by agenda-driven politicians, and it shows in its
mismanagement to date.
A lesson they should take, to which I recently referred them, is
ANZ Stadium (Stadium Australia), Sydney’s Olympic venue. Unlike Cape Town
Stadium’s obscure management system, ANZ Stadium’s is fully transparent. That
stadium is run as a business by a board of directors and a highly qualified
six-man team that includes a quantity surveyor and chartered account (see www.anzstadium.com.au/).
ANZ Stadium uses ‘life-cycle costing and strategic planning forthe replacement of stadium assets, and planning and implementation of capitalexpenditure’ methods.
However, according to city finance chief Kevin Jacoby – who
despite saying he is very busy, claims to be the stadium’s sole financial,
asset, operations and strategic planning manager – information on the
management methods used for our stadium is ‘simply not available’.
Also,
if we are to believe Jacoby (LinkedIn: B Com; his public profile has been removed since my communication with him on June 17 ), information on the stadium’s management
team is ‘not available’, and their qualifications to manage this R4.4 billion asset
are confidential.
In
conclusion, the Cape Town Stadium is poorly and unprofessionally managed, and
its management team incompetent and negligent. In Jacoby’s own words, there are
so many things about it they don’t know, and have no intention of finding out:
information is ‘simply not available’ at this time or in the future.
This
is why they speculated on the Cape Town Cup and lost ratepayer money (disclosure: I asked Auditor-General Kimi Makwetu to investigate), why they refuse
to consider in-stadium cost-saving alternatives using well-known, benchmarked analytical
tools, why they are proceeding with the financially questionable business plan model
and why they continue to insist only they have the answers and the
facility’s best interest at heart, when it’s clear they don’t.
It’s
concerning to me politicians of all parties – who soon will ask us to vote for
them – who have financial and political oversight over the stadium, are
abdicating their oath to hold the city’s executive to account and ask the
questions I and the other lone voices before me have dared asked.
This week I asked Auditor-General of South Africa to investigate the city for non-compliance with the Public Finance Management Act and MFMA over its management of the stadium.
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