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Dysfunctional municipality chokes Astral

Behind the company’s water woes.
Astral has warned shareholders that its operations in the Vaal area are suffering as the Lekwa municipality fails to supply enough water. Picture: Dhiraj Singh, Bloomberg

It is not common for a large listed company with thousands of employees to publish a formal announcement warning shareholders that up to 40% of its production is under threat due to interruptions of basic services. 

In the rare cases it does happen, it is usually a mining company working in remote areas close to countries embroiled in civil war.

Nobody expected a chicken farm near Standerton to announce that its operations are under threat due to a lack of water, especially not with the Vaal River running through the middle of the town. Yet Astral Foods had to warn shareholders last week that its operations in the area are suffering as the Lekwa Local Municipality is incapable of supplying enough water to its farm and processing facility close to the town.

Food security impact

The situation not only affects Astral shareholders or employees who might lose their jobs, it is also important in the context of food security in SA. Astral is one of the biggest producers of chicken in the country and the operation in Standerton usually contributes 40% to its production.

Andy Crocker, Astral’s managing director of commercial operations, says the plant in Standerton has the capacity to supply two million chickens per week. Astral’s total broiler production amounts to five million every week.

The plant needs five megalitres of water a day to operate at full capacity, but suffers from regular interruptions in supply. “We are only receiving 1.8 megalitres per day, resulting in the operation only being able to operate a singe shift,” says Crocker. “It produces less than half of the normal output.”

Court order

Astral even obtained a court order to try and force the municipality to fulfil its obligation, but said in the announcement last week that the situation had deteriorated further: “The substantial undersupply of water has escalated notwithstanding a permanent order of the court requiring the municipality to secure a minimum necessary supply.”

Crocker says that Astral applied for and was awarded an urgent order on April 4, which required the municipality to provide the plant with water at the level of pressure and at the quantity it had done for the period prior to the interruption. “Following further interaction with the municipality it was agreed to replace this order with a mutual agreement ensuring Astral a minimum supply of four megalitres per day, pending repairs to municipal infrastructure, but this order has not been adhered to,” says Crocker.

Astral warned that the problems with water supply will have a significant effect on profitability and calculates that it will reduce profit by at least R85 million.

The company estimates that additional costs to try to manage the water problems will amount to R19 million, while the forced reduction in production will see R31 million evaporate, trying to slaughter chickens at different facilities adds R25 million to costs, and chicken feed and related costs due to delaying slaughter will add another R10 million to the losses.

Crocker says Astral is prepared to take further action to enforce the court order and do whatever else necessary to minimise harm to the Standerton operation, as well as recover costs that have resulted from the municipality failing to meet is obligations.

Municipality seems oblivious

It seems the municipality does not take into consideration that Astral is by far the biggest employer in the area. Crocker told Moneyweb that the plant employs 2 425 people and creates employment for at least another 600 people at local suppliers to the farm.

The problems are already affecting workers; with the plant only operating at 50% capacity, the company had to reduce working hours by half. Astral will be forced to reduce operations permanently if the situation does not return to normal, says Crocker.

A closer look at Lekwa municipality sheds more light on Astral’s problems. The Municipal Financial Sustainability Index by Ratings Afrika ranks it as one of the worst in SA.

Lekwa was one of the first stops when Zweli Mkhize, then minister of cooperative governance and traditional affairs, visited distressed and dysfunctional municipalities in Mpumalanga during August 2018.

The visit was prompted by reports of sewerage running down the main street and the municipality dumping refuse on open plots.

Lekwa is also on the list of municipalities that does not pay Eskom for electricity.

It is one of Eskom’s biggest debtors, with arrears of R563 million at the end of Eskom’s last financial year.

It seems the recent period of load shedding aggravated the deterioration of infrastructure in Standerton, with water pipes and pump stations failing when electricity supply recovers after an interruption, especially in the absence of proper maintenance.

A summary of the Lekwa municipality’s financial statements published in the Local Government Handbook: South Africa shows the municipality has deteriorated year after year during the last five years. The operating deficit increased to R383 million in the year to June 2018 compared to R335 million the previous year and a deficit of R195 million in 2014.

In the process, the municipality has destroyed the ‘community wealth’ with liabilities currently exceeding assets to the tune of R106 million compared to a positive R1.5 billion in 2014.

Unauthorised, irregular and fruitless and wasteful expenditure during the period exceeded R645 million.

A recent donation of R35 million by Sasol – ironically towards a water supply project – was delayed when two senior ANC councillors were involved in an alteration during a council meeting in April at which Sasol was to present the donation. An argument between council speaker Miriam Khota and chief whip Mapaseka Molaba led to a few slaps and charges of assault against each other.

Astral has investigated the possibility of building its own water treatment plant and pumping water from the Vaal River directly, but it will be costly. Obviously the cost of such a project will be compared to the cost of moving the plant elsewhere, which will come with job losses.

“The deterioration in municipal infrastructure is not supportive of the economic growth so desperately needed and sought after in the country, especially in rural areas where jobs are most needed,” says Crocker.

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Tragic, how infrastructure is falling apart. It has become very difficult to operate any business in SA. And with minimum wages even more.

You can get prefabricated, containerized water abstraction and treatment plants designed for Africa and built in SA. These plants mainly serve remote areas especially mining and tourism facilities – Best for them to get their own and quickly !!!!

Then I’m assuming they’ll pay less for rates or corporate income tax? Obvious not …

I feel so sorry for the workers and the business when a municipality is run into the ground…

In this day and age hardly a headline goes by that does have the words dysfunctional, corrupt and failed in it. From Eskom to this municipality the anc really have no idea how to run a country let a business…

The sad part is that the many millions of unemployed will continue to suffer yet ironically they will still vote for them.

The vaguely interesting part is that, despite the threat to jobs and the economy (small I know, but significant, surely) there is no word from ANC politicians who waffle on about EWC etc etc. Rotten rats to a man.

don’t give the incompetent credit please..

to “run” something into the ground sound like they actually DID or tried something!

it is mainly as a result of just total paralysis/inaction by incompetence!

A tragic example of post colonial reversion to the African mean.

Don’t you mean another tragic example of apartheid causing failure 25 years later? No accountability, and the election is over. Good luck Astral. If you see anyone there to address problems before the next election I will eat my hat.

One solution (not the best though): Crowdfund ones own water infrastructure

On a more macro level the dysfunctional national government (ANC) is choking South Africa.

The biggest worry is and has proven to be that the more dysfunctional a municipality – the more votes for the EFF! Dysfunctional municipalities result in poverty creation with no jobs, services or forward planning….you only have to look at the last election to see what is happening and how the disenfranchised are supporting a potential revolution. Just my opinion.

No one will say it but I will, $web will probably cut it but here goes: the indigenous population of this continent is NOT capable of running non iron-age systems and infrastructure, that is a provable, scientific fact

The Proteas just got their a$$es handed to them… and rightly so. They were mediocre and displayed no sense of urgency, or will to fight. It is almost as if they have decided that it is way to hard work and effort to win a world cup. The same applies to our soccer team, rugby team, netball team… and SA INC. We have given up. We have set ourselves low goals, and when we couldn’t even achieve those, we lowered it even more. This comes from a mediocre government, who always blamed other, never accepting responsibility for their own under-performance. This country will be solidly trounced and beaten into a pulp on the world stage, as long as we accept low performance and mediocrity as the norm. The ANC must urgently turn around the downward spiral that they have created. As citizens it is our job to stop demanding, without contributing; to improve, not only our employabilility, but our performance and productivity – and to stop blaming others for our own mistakes. Unless we break this downward spiral, we will handsomely stuff up this country by very successfully doing as little as possible, for as long as we possible, yet hoping, against all hope, that things will miraculously work out.

Agree 110% but it will never happen in Africa.Is an Africa thing.And it is not “we” who is the problem. It is the corrupt ANC and friends and asinine voters and unions. People in private sector works their butts of to survive.

@LuluAlert………..100% agreed !!!!

The Municipality must be careful – they will not have enough water to boil Cyril’s white frogs in.

@Rietpan….haha…too true !

And the Mayor and Councillors drive around in multi-million rand luxury vehicles, surrounded by costly Bodyguards, ironically all eating copious amounts of KFC all day long at the ratepayer’s expense!!! EISHHHH!!

The evil ANC is chocking the entire country to death. The world’s biggest tragedy unfolding in our country.

End of comments.

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