ELECTRICITY TARIFFS
� Introduction � Background � Budget Assumptions � Budget highlights � Municipal Budget � External funds (Grants) � Revenue Framework � Tariff-setting � Expenditure Framework
� The Municipal Finance Management Act (MFMA) sets out the key legislative requirements for the municipal budget process � National Treasury further prescribes a comprehensive approach to these budgets based on the requirements of the MFMA � “THE MAYOR MUST TABLE THE ANNUAL BUDGET OF “THE MAYOR MUST TABLE THE ANNUAL BUDGET OF A COUNCIL MEETING AT LEAST 90 DAYS (31 A COUNCIL MEETING AT LEAST 90 DAYS (31 MARCH) BEFORE THE START OF THE BUDGET YEAR” MARCH) BEFORE THE START OF THE BUDGET YEAR” � “COUNCIL MUAST THEN CO “COUNCIL MUAST THEN CONSIDER APPROVAL OF NSIDER APPROVAL OF THE ANNUAL BUDGET AT LEAST 30 DAYS (31 THE ANNUAL BUDGET AT LEAST 30 DAYS (31 ST ST MAY) BEFORE THE START OF THE BUDGET YEAR” MAY) BEFORE THE START OF THE BUDGET YEAR”
� Section 17 of the MFMA sets out the required content of the Budget Report and supporting documentation, which include the following key documentation: � •Resolution imposing any municipal tax and tariffs for the budget year, � •Resolutions approving measureable performance objectives for revenue from each source and for each vote in the budget, � •resolutions approving any changes to the municipality’s Integrated Development plan (IDP) � •Resolutions approving any changes to the municipality’s budget-related policies
� •Information regarding implications of the proposed tariffs on house hold accounts, � •Projected monthly cash flow forecast. � The MSA, chapter 4 deals with community participation. With specific references to the budget process, section 16(I) and (iv) stipulate that a municipality must encourage and create conditions for the local community to participate in the affairs of the municipality, including in the preparation, implementation and review of its integrated development plan and the preparation of its budget. � This processes has been concluded by the Umjindi Municipal Council � This presentation to NERSA and the authorities is to seek approval of Umjindi Municipality Electrical Tariffs
� The compilation of the 2010/11 MTREF will therefore be remembered for the sacrifice and the creativity that was required to compile a viable financial plan for the forthcoming three years in spite of the real financial challenges as indicated above � Umjindi Municipality is a category B Municipality (medium capacity) situated in Mpumalanga, Eastern Lowveld. � Residents is estimated at 75 000
� The bulk of Umjindi’s electricity customers is residential customers (11200) and 96% is on PrePaid � Umjindi was one of the first Municipalities that offered FREE BASIC ELECTRICITY 50 kWh to all residential customers.
� In compiling the 2010/11 MTREF, the following pivotal issues and assumptions were taken into consideration and modelled into the budget planning process; � � Economic climate � � Poverty levels � � Inflation � � Service delivery cost increases � Tariff and Property Rate increases should be affordable and on par with the CPIX, however taking into account the need to address infrastructure requirements.
� “Ringed Fence” specific allocations to departments � Budget allocations for externally funded projects be maintained at approved levels � cash flow projections be strictly maintained to ensure the municipality’s ability to meet its obligations � Price movement on bulk purchases: Price movement on bulk purchases: The 2010/11 budget has included a price increase of 24.8% for bulk electricity purchases based on NERSA’s guideline electricity tariff increase in line with the approved Eskom average price increase for 2010/11.
� Pay inflation on Salaries and Allow Pay inflation on Salaries and Allowances: nces: Employees salaries and contributions have been increased in line with the SALGA three year collective agreement (July 2009 to 30 (July 2009 to 30 June 2012) June 2012) which is based on the average CPIX (as published by Statistics South Africa) plus 1,5% � Pay inflation on Councillor Allowances: Pay inflation on Councillor Allowances: Increase for councillors allowances has been allowed for in the 2010/11 budget in line with the Remuneration of Public
� Indigent Registration and Approval: Indigent Registration and Approval: The Budget makes provision for 2000 indigents to be registered approved and receiving free basic services in 2010/11. � It is assumed that of the total income budget 97% will be received as actual income. � Gr Grant funding: ant funding: The Equitable Share, Financial Management Grant, Municipal Systems Improvement grant, Municipal Infrastructure Grant, National Electrification Programme Grant end EPWP Incentive Grant were determined in line with the 2008/09 Division of Revenue Bill (Government Gazette No. 32882).
� An amount of R3m R3m has been budgeted for Indigents subsidization � An amount of R5,5m R5,5m has been budgeted for free basic services to other residents � An amount of R1,4m R1,4m has been budgeted for Property Rates rebate and considered to be revenue foregone � R42m R42m has been budgeted for development of infrastructure and institutional
� The following table represents the draft 2010/11 MTREF as informed by the 2009/10 Adjustment Budget, Integrated Development Plan and various other best practice methodologies e.g. Balanced budget constraint, affordability of services to the community within the context of sustainability.
DETAILS DETAILS BUDGET BUDGET ADJ BUDGET ADJ BUDGET BUDGET BUDGET INCREASE / INCREASE / 2009/10 2009/10 2009/10 2009/10 2010/11 2010/11 (DECREASE) (DECREASE) R’000 R’000 R’000 R’000 R’000 R’000 % Operating 182 374 156 625 183 066 0,4% / Revenue 17% Operating 193 713 173 569 181 493 (6,3%) / Expenditure 4,7% Surplus / (11 339) (16 944) 1 573 (Deficit)
DESCRIPTION DESCRIPTION BUDGET BUDGET BUDGET BUDGET INCREASE / INCREASE / 2009/10 2009/10 2010/11 2010/11 (DECREASE) (DECREASE) R’000 R’000 R’000 R’000 % MIG 16 719 18 630 11% DME 8 960 8 500 (5%) MSIG 735 750 2% FMG 750 1 000 33% EPWP Incentive 167 100% EQUITABLE 29 392 36 584 24% SHARE TOTAL 56 556 65 631 16%
Streetlights & High Streetlights & High 600 000 600 000 mast lights (Dikbas mast lights (Dikbas & Verulam) Verulam) NATIONAL 8 500 000 ELECTRIFICATION FUND (DME) Link services for 2 999 200 Verulam Electrification Electrification of 2 980 800 Verulam Phase I Emjindini Ext 14 Phase 2 520 000 II (380 households)
MUNICIPAL SYSTEM MUNICIPAL SYSTEMS S 750 000 750 000 INFRASTRUCTURE INFRASTRUCTURE GRANT (MSIG) GRANT (MSIG) Refinement of Asset 330 000 Register EPWP INCENTIVE 167 000 GRANT Labour intensive 167 000 projects
EQUITABLE SHARE EQUITABLE SHARE 36 584 000 36 584 000 Councilors Allowances 778 050 Free Basic Services to 5 577 475 all residents Subsidy for Indigent 3 007 877 Households Pre-paid services 160 000 Indigent registration 55 000 process – temps & advert Ward committee 10 000 meetings Provision of water to 1 000 000 rural areas
Provision of free alternative Provision of free alternative 820 000 820 000 energy energy Vending machines – 10 000 Assistance Provision of free basic service 5 000 to farms bordering municipal boundary _ ESKOM Internal Audit Software System 150 000 Work study conducted for the 486 647 entire Municipality Capital Projects 15 870 000 Operational Budget 8 153 951
� Growth in town and economic development; � Revenue enhancement; � Achievement of the 97% annualized collection rate for consumer revenue; � National Treasury guidelines; � Electricity tariff increase within National Electrification Regulator of South Africa (NERSA) approval; � Achievement of full cost recovery of specific Departments; � Determining tariff escalation rate by establishing/ calculating revenue requirements; � Ensuring ability to extent new services and recovering of costs thereof
� The following table is a high summary of the draft 2010/11 MTREF (Classified per main revenue source)
DETAILS DETAILS BUDGET BUDGET ADJ ADJ BUDGET BUDGET INCREASE / INCREASE / 2009/10 2009/10 BUDGET BUDGET 2010/11 2010/11 (DECREASE) (DECREASE) R’000 R’000 2009/10 2009/10 R’000 R’000 % R’000 R’000 Property 14 630 16 630 21 073 44% Rates Electricity 39 845 39 846 58 202 46% Water 17 207 17 207 18 277 6% Sanitation 4 757 4 755 4 849 2% Refuse 7 029 7 161 6 117 (15%) Removal Government 57 768 58 718 68 031 16% Grants
� Total revenue increased by 17% against the 2009/10 adjustment budget and by 0,4% against the 2009/10 approved budget � Property rates increased by 44% against the 2009/10 budget, and mainly as a result of inclusion of the farmers � Other service charges have in total increased by 27% against the 2009/10 adjustment budget. This can mainly be attributed to the tariff increases
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