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City braces for tariff hikes

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Indications are that rates, sewer and sanitation, refuse collection and water will all go up by around six percent

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JUST as city residents recover from a crippling water crisis, they can brace themselves for another blow as the city fathers meet today to adopt the budget for the coming financial year – and indications are that locals should prepare for some heavy increases.

If the Medium Term Revenue and Expenditure Framework (MTREF), which was adopted last year for the next two years, is anything to go by, residents can expect an overall increase of around six percent on their municipal bill. If adopted, this will be much higher than this year’s approved tariff increase of 4.22 percent.

Indications are that rates, sewer and sanitation, refuse collection and water will all go up by around six percent.

The expected electricity increase is also around six percent.

The electricity increase is, however, not set by the council but determined by Nersa, who in December offered Eskom a 5.2 percent tariff increase for 2018/19, effective from April.

Eskom, however, has requested a 30 percent hike in order to recover the R66.6 billion lost between 2014 and 2017. Nersa gave the public until March 23 to submit comments on the application.

One of the major considerations that the Sol Plaatje City Council will need to take into account when adopting its budget this afternoon is the urgent need for development in the city, including fixing the ageing infrastructure, like roads and stormwater infrastructure.

This, however, will need to be weighed against the ability of residents to afford municipal services.

By the end of January this year, the outstanding debt owed to the municipality had already exceeded R2.2 billion and was continuing to grow, while the collection rate was only at 65.27 percent.

Although the city council has appointed a debt collection agent, namely New Integrated Credit Solutions, no progress reports have yet been submitted on whether the municipality has halted the growing debts or increased the collection rate.

The budget assumes a collection rate of around 90 percent which the municipality is falling far short of currently, according to the latest figures available.

Another factor that will need to be taken into consideration by the city fathers when adopting today’s budget is the cost of electricity and the increased reliance of both residents and businesses on renewable energy.

One of the biggest profit generators for the municipality is electricity. However, because of the rising costs, many residents and businesses are opting to go off the grid, reducing this potential cash cow for the local authority.

As electricity prices soar and the cost of renewable energy becomes more affordable, it is expected that more local people will revert to solar energy.

While a painful and inconvenient exercise for residents, it is anticipated that the recent upgrading of the water network will result in substantial savings for the Sol Plaatje Municipality.

By minimising water losses and repairing leaks on the main water line carrying water from Riverton to the city, it is projected that this could result in a savings of between five to seven percent.

The municipality is also expected to commence planning soon for additional storage capacity at Riverton to recapture backwashed water that is returned to the river, leading to a further savings of about five percent.

At the end of June last year, it was reported that water losses in Kimberley were standing at 50 percent – which means that revenue was collected for only 50 percent of the water extracted from the Vaal (and paid for by the municipality) – a loss of almost R35 million (or 16 million kilolitres).

The acceptable rate for water losses is between 25 percent to 35 percent.

According to the 2016/17 annual report the “volume of unbilled water consumption and apparent losses are regarded as the effective causes of high non-revenue water.

“Real losses represent a significant defect on water infrastructure such a pipe burst and leakages. Despite progressive interventions undertaken by the municipality to reduce non-revenue water, old and aged infrastructure still remains the biggest challenge.”

Electricity losses are also a huge challenge in the city and average about 25 percent – resulting in a loss of R103.7 million to the local authority.

Today’s budget is also not likely to see any new projects and will continue to focus on the municipality’s long-term view to upgrade essential infrastructure in support of growth and development.

With an expected total capital budget of more than R300 million, a large portion of this is expected to be spent on the formalisation of informal areas, including the provision of electricity and other services to these areas.

According to the MRTEF, the municipality will in the coming year also invest in the replacement of computer hardware as well as upgrading the stormwater network in Galeshewe.

An expected R35 million has been allocated in the MRTEF (2018/19) for the upgrading of the Herlear substation, around R15 million for the bulk supply of water in Ritchie,
R10 million for the Thlageng Dam and about R20 million for the resealing of roads in Galeshewe.

The upgrading of the Thlageng Dam, which is notorious for bursting its banks during heavy storms, is being funded from money received from National Treasury for the upgrading of the city’s stormwater network, amounting to almost R500 million over the next three years.

One of the considerations that will have to be kept in mind in the budget is the expected salary increases for municipal workers.

While negotiations are still continuing, the South African Municipal Workers’ Union (Samwu) is demanding an across the board 15 percent salary increase or R3 155, a minimum wage of R10 000 and a R2 000 housing allowance for all employees.

The South African Local Government Association (Salga) has offered an across the board salary increase of 5.9 percent and a housing allowance for individuals who own homes.

The negotiations are set to continue next month.

Another area of concern is the cash flow position of the municipality, which is under pressure. As pointed out in the annual report, although the net cash generated from operating activities (after interest) is still positive, there is a declining trend in the cash balance held by the municipality.

Last year was the second consecutive year that a decrease in the cash balance was realised.

Factors that contribute to the declining cash balance, is the weak debt collection rate, fuelled by the economic climate and high unemployment rate within the municipal area.

Stringent measures to control cash outflow and curb expenditure need to be implemented by the municipality to ensure that the situation is properly controlled and monitored.

The municipality has also been warned by the auditor-general to watch irregular expenditure, which for the 2015/16 financial year amounted to R2.8 million.