Oudtshoorn, 07 June 2021 – The Greater Oudtshoorn Municipal Council approved the integrated Development Plan for the 2022-2027 financial years starting on 01 July 2022 as well as the MTREF budget, tariffs and budget-related policies for the 2022-2023 financial year during a Special Council Meeting on Monday, 06 June 2022.
“The current economy was heavily affected by the coronavirus, as with the rest of the world. The devastating impact of the pandemic and world economic crisis is still and reflective in the ability to generate cash by the municipality and inability of the consumers to repay their debt and increase in indigent consumers”, the Mayor of the Greater Oudtshoorn said whilst he was presenting the budget speech before the council the previous week.
“This budget was drafted under challenging circumstances, however, the Oudtshoorn community has the right to be provided with high-quality reliable services and the efficient utilization of financial resources remains key in delivering on our mandate and ensuring the financial wellbeing of the municipality.”
Oudtshoorn brief financial overview
“The municipality has made great strides in its financial recovery where we are in a position to start focusing economic resources towards service delivery, infrastructure refurbishment and maintenance instead of using available resources to pay off overdue debt.
The following needs to be highlighted in respect of the financial results attained to date:
- The cash position has improved since 2015 from a cash flow deficit to a positive cash flow of R177 Million as of June 2020 but declined by R61 million to R115 million.
- Trade Creditors have decreased from an amount exceeding R90 Million in arrear debt in November 2015 all creditors paid within current terms currently.
- Debtor collection has improved from 86% in early 2016 to exceed 96.5% in 2019 but decreased in 2021 to 92% due to Covid 19 negative impact on the local economy.
- The cash flow position remained positive in 2021, with the current ratio improving to 1.66:1, but concern is raised that no additional funding is available to create a capital replacement reserve.
- The current cost coverage ratio as of 30 June 2021 is only 2.3:1 which means we have only sufficient cash in the short term available to cover 2.3 month of fixed operating expenditure. This declined from 2:8 in 2020.
Capital Budget
Total funded capital projects for the 2022/23 financial year amount to R92 million with the main focus being the following:
|
Water Infrastructure |
R 46 800 200 |
|
Electricity |
R 5 450 000 |
|
Sanitation |
R 750 000 |
|
Roads Infrastructure |
R 12 489 800 |
|
Sport and recreation facilities |
R 18 500 200 |
|
Community and Social |
R 1 166 000 |
|
Other |
R 6 891 000 |
|
Total |
R 92 047 200
|
Critical capital projects include major replacements of electrical infrastructure, road resurfacing and water pipe replacements. An asbestos pipe replacement project has been registered with MIG since the 2020/21 financial year as a multi-year project, and a new MIG ring-fenced grant has been allocated to the value of R10 million for the Upgrading of Bongolethu Sportsgrounds and the Blossoms pipeline final phase.
The capital budget is funded mainly by means of grants from the National and Provincial Government in the amount of R60.3 million. The remainder will be financed from own revenue generated amounting to R10.9 million and external borrowing to an amount of R20.7 million in respect of major infrastructure refurbishments and replacement.
Operating Budget
The operating expenditure budget for the 2022/2023 financial year amounts to R 735 144 400 which represents an increase of R 64 354 500 or 9.59 per sent over the 4th revised budget for 2021/22.
The cost drivers of the increase in the budget can be summarized as follows:
- Only existing critical vacancies were budgeted
- Bulk electricity purchases from NERSA of 9.61%
- Electricity increase depending on NERSA approval, 7.47 5 %
- The tariff for water increases by between 6% and 7.5% depending on quantities used during the month
- Service Charges refuse and assessment rates have been increased by an average of 6 to 12%,
- The annual sewage tariff is new, away from per toilet with a combination of fixed and running cost which amounts to R2 974 p.a. (more or less of R248 p.m. for residential customers).
Housing allocation of R2.5 million has been allocated in the Government Gazette in 2022/23 and increases in the outer years to R22.3 million and R17.3 million, which will be paid directly to the service provider by the Department of Human Settlement for the top structures of the new Dysselsdorp Phase 3 development and other projects as per agreement with the transferring department.
Revenue sources remain under strain and the municipality has no alternative but to increase tariffs for the 2022/23 financial year in accordance with the operational requirements and other factors influencing price increases and the cost of rendering services (cost reflective tariffs to be phased in). It is forecasted that the municipality will only meet its full liquidity requirements in 2025 in the Long-Term Financial Plan that was compiled by specialists INCA Portfolio Managers.
The council has in accordance with the National Treasury circulars and once again adopted a pro-poor approach and prioritized the need to provide indigent support and to render basic services to all. Most of the budget is geared towards assisting poor communities who qualified for indigent assistance to help them with paying their municipal accounts.
The implementation of a new general valuation roll needs to be done and the planning process to appoint a service provider will be performed in 2022/23, for the interim supplementary valuation rolls are implemented to aid in the recovery of rates revenue due. The increase in assessment rates will be 10% for the 2022/23 financial year as per the cost-reflective tariff study property rates is insufficient to cover the full cost of expenditure it needs to subsidize, and above inflationary increase is necessary.
An amount of R20.9 million has been set aside for materials in respect of repairs and maintenance and in addition, thereto 66 per cent of the capital budget is allocated for the upgrading of existing assets representing an amount of R38 Million. Major refurbishment of infrastructure is prioritized to prolong the lifespan of assets and to prevent them from falling further into disrepair. A further provision will be made in the outer years of the MTREF for expenditure in this regard.
Indigent and other subsidies
The sharp growth in indigent registrations during the 2021/22 financial year is of great concern and further illustrates the challenging economic circumstances faced by municipal customers, that will flow over to the 2022/23 financial year.
Indigent subsidies
- 100% of Refuse charge
- 100% of Sewerage charge
- 6 kl of free water plus free basic water
- 8 kl of free water plus free basic water if households => 12 occupants.
- 50 units free electricity plus free basic elect & Amp charge, to a maximum of 20 Amps
- Discount on assessment rates R70,000 value
Total monthly household income less or equal to R 4000
The indigent subsidy package is based on the national norm and stretches the affordability threshold of the municipality due to the growing number of indigent households and the fact remains that the monetary value of the subsidies exceeds the national allocation. The total amount in respect of free services, inclusive of free services given in Eskom distribution areas and assessment rate rebates is about R63.4 million for the 2022/23 financial year. It is anticipated that more than 7900 households will register for indigent support, representing approximately 33% of households in the greater Oudtshoorn area.
In addition to the subsidies provided to indigent consumers, the assessment rates rebate for pensioners has been extended to include pensioner households.
- Pensioners 60yrs of age with income between R 0 – R180 000 p.a. – 35% discount on Assessment rates
- 6 kl of free water plus basic water-free
- 50 Units electricity-free plus basic electricity free
- Write-Off historical debt once-off.
The budget also provides for relief to be given to people with disabilities thus qualifying for the same benefits as pensioners in respect of subsidized services.
Provision is also made for 100 free units of electricity for indigent/pensioners/disabled households where occupants are on life support systems that require the use of electricity.
The Annual Budget and IDP documents are available on the Oudtshoorn Municipal Website.