PRESENTATION TO SELECT COMMITTEE ON APPROPRIATIONS

1. PRESENTATION TO SELECT COMMITTEE ON APPROPRIATIONS 16 October 2012 PRESENTATION BY Cllr NG HLONGWANE EXECUTIVE MAYOR: EMFULENI LOCAL MUNICIPALITY

2. CONTENTS GRANTS EXPENDITURE MUNICIPAL BUDGETS MUNICIPAL CASH FLOW FINANCIAL STATUS MUNICIPAL OVERVIEW 1 5 2 4 AUDIT OUTCOMES AND ACTION PLANS COMPLIANCE MATTERS CURRENT ASSETS AND LIABILITIES CHALLENGES,WAY-FORWARD AND PRIORITIES SOURCE OF REVENUE,COLLECTION AND EXPENDITURE MANAGEMENT 8 3 9 6 7

3. CONTEXT AND BACKGROUND • Municipal Assets Value = R 9 billion • Municipal Budget 2011/12 Financial Year = R 3.7 billion 2012/13 Financial Year = R 4.5 billion • Municipal Jurisdiction( area size) = 987.45 Square KM’ • Water and Sanitation Coverage = 98% • Electricity Coverage = 97% • Portable Water Quality Compliance = 100% • Waste Water Discharge Compliance = 97% • Refuse Collection Coverage = 100%

4. Top 10 Challenges( institutional) • Unemployment Rate = 45% • Water and Sanitation Infrastructure Backlog = R10 billion • Roads Infrastructure Backlog = R9 billion • Electricity Backlog = R2 billion • Payment Levels in Poor Areas = 3% • Outstanding Debt = R2 billion • Cash Flow – Unfavorable Status

5. Top 10 Challenges( institutional) • Water Losses = R180 million Per Annum • Electricity Losses = R20 million Per Annum • Billing Functionality

6. Some Key Indicators

7. Budget Year on Year • Budget from 2003/04 to 2006/07 was not credible and reflected either a surplus or deficit • Growth in budget is noticed due to increase service delivery demands

8. Budget Year on Year

9. MUNICIPAL CASH FLOW STATUS 8

10. Cash Flow Status- Quarter ended September 2012 • Council raised R 150 million overdraft facility as a bridging finance during 2012/13 financial year. Included within the Expenditure, are accruals raised at year-end amounting to +/- R 300 million. Bulk services account to + 60% of expenditure incurred.

11. Eskom Impact (R) • Eskom bill has a significant effect on the municipality’s cash flow • A R 150 million overdraft was raised as a bridging finance to address, among others, effect of Eskom bill

12. Performance on Electricity

13. Performance on Water

14. Financial Sustainability • Managing cash flow, debtors’ collections, distribution losses on electricity • and water and overall financial sustainability of the municipality ACTION PLAN

15. Financial Sustainability (Cont…) • Improving the debtors collection rate • Cash flow concerns due to debtors write off • Socio economic factors affecting payment rates

16. REVENUE,COLLECTIONS AND EXPENDITURE MANAGEMENT 15

17. STATEMENT OF FIN.. PERFORMANCE Cost Drivers • Included in the Budget is R 364 million for capital expenditure, for which, its spending pattern is not reflected as the expense, as it has been capitalized, disclosed in the following slide. Also the depreciation increased materially due to the Fixed Assets unbundling process (GRAP 17)

18. CAPITAL SPENDINGS (2011/12 FINANCIAL YEAR) • The under-spending of council funded projects was contributed by the cash-flow restrictions. Most of the projects were rolled over into 2012/13 financial years

19. Revenue (2011/12 Financial year) • The billed revenue on all services are on par with the budgeted billing for the current financial year, except for rental of facilities at 121%.

20. Expenditure (2011/2012 Financial Year) • The realized expenditure is sitting at 12% above the realized revenue and 7% above the budget. Due to the revaluation process of the Fixed Assets (GRAP 17), our assets were re-stated at the net book value of R 13 billion. This led to an increase on Depreciation from anticipated R 130 million to R 733 million in 2011/12 financial year.

21. 2011/12 Financial Year GRANTS SPENDINGS

22. National Grants (2011/12 financial year)

23. Provincial & District Grants (2011/12 Financial Year)

24. MUNICIPAL BUDGET 23

25. Budget preparation process • Establishment of effective Budget Steering Committee • Approval of the IDP and Budget Process Plan, highlighting: • Key Stakeholders • Key deadlines • Consultation processes • Mid term budget and performance review-January 2012 • Adjustment budget 2011/12 February 2012 • Draft 2012/13 Multiyear Budget - March 2012 • Public participation process • Final MTREF Budget adopted 28 May 2012

26. Subsequent Activities considered • Experienced Water losses in 2010/11 • Inflation hikes, guidelines from budget circulars • IDP priorities • Input costs v/s Output costs (Tariffs) • Achieved collection rates • True Cost of Service Delivery • Direct cost • Indirect overhead cost

27. Tariff Modelling • Policy Shifts • Recognition of Indigents – Property value below R150 000 • Free Basic Water – Only to Indigents • Equalisation of tariffs • Restructuring of Water Tariffs – Encourage water saving • Residential Sewerage tariffs dependent on water consumption

28. Tariff Modelling- 2012/13 Fin... Year • Tariff structures approved by council together with Budget-May 2012 • Tariff Increases approved with the Budget were: • Property Rates – 10% • Electricity – 13.3% • Water – 21.6% (13.5% + 8.1%) • Sewerage – 19.37% (13.5% + 70% of 8.1%) • Refuse – 10% • Sundry Tariffs – 10% • Eskom Tariff increase – 13.5% • Rand Water Tariff increase – 13.5%

29. Tariff Modelling - WATER • Business - Restructuring of tariffs proposed - Water • Inclining block tariff (DBT) for water • IBT in compliance with Circular 58 and s10 of the Water Services Act • Circular 58 – prescribes IBT • S10 (2)(d) of the Water Services Act – tariffs should promote or achieve water conservation • Tariffs cheaper for initial usage but higher with increased consumption

30. Tariffs – Business (Continue) • Restructuring of tariffs proposed - Sewerage • Equalisation of tariffs • Due to Impact it – proposed to equalize in 2012/13 and move towards Water consumption based in 2013/14 • Additional tariffs in respect of type of business to be included in 2012/13 – Fat Traps, etc.

31. Tariffs – Business (Continue) • Refuse • Rendered at a significant loss • Previously subsidised through other tariffs • Breakeven tariff calculated at 18% increase • Electricity tariff • Nersa approved an average tariff increase of 13.3 % • Emfuleni pays 13.5% towards Eskom

32. Tariffs – Residential • Restructuring of tariffs proposed - Water • Inclining block tariff (IBT) for water, electricity, sewerage • IBT in compliance with Circular 58 and s10 of the Water Services Act • Circular 58 – prescribes IBT • S10 (2)(d) of the Water Services Act – tariffs should promote or achieve water conservation • Tariffs cheaper for initial usage but higher with increased consumption

33. Tariffs – Residential • Restructuring of tariffs proposed - Sewerage • Waterborne Sewerage principle to be followed • Basic Plus Sewerage tariff (billing units) linked to 50% of Water consumption • Refuse • Rendered at a significant loss • Previously subsidized through other tariffs • Breakeven tariff calculated at 18% increase • Electricity tariff • NERSA approved a average tariff increase of 13.3 % • Emfuleni pays 13.5% more towards Eskom

34. Tariff Structure - Residential • Water Tariff Structure • Tariff increase per block (Incremental) • Maximum Water consumption block – Currently 30kl • Restructuring proposal (Tariff increments) • Additional Blocks – 30kl-45kl and 45kl + • Punitive tariff • Sewerage – Consideration of water based tariff • Basic + 50% of water consumption

35. Revenue & Collections – Budget 2012/13

36. Expenditure –Budget 2012/13

37. Key Expenditure Budget components • Bulk purchases 38.5 % • Electricity 30.1 % • Water 8.4 % • Personnel Costs 16 % • Repairs and Maintenance 3.1 % • Capital expenditure 8.1 % • Total 2012/13 MTREF Budget R 4.5 billion

38. LEGISLATIVE COMPLIANCE 37

39. Compliance with Audit Processes & the Law Municipal Structures Act • Section 79 Establishment – (1) The Council has appointed a functional Audit Committee and MPAC for the effective and efficient performance of its functionalities. • Audit Committee members appointed has requisite skills as follows: • Financial Accounting and Management • Internal and External Audit • Performance and Risk Management • Engineering • Legal and Governance (Final)

40. Compliance with Audit Processes & the Law (Cont) • Emfuleni Local Municipality is in the process to appoint an IT Specialist to serve as a member to further capacitate the Committee. • Audit Committee and MPAC co-ordinate their efforts on oversight as per MFMA Circular 32 and COGTA and National Treasury Instructions. (Final)

41. Compliance with Audit Processes & the Law (Cont) Municipal System Act • Section 45 – The results of the performance measurements are audited by Internal Audit in terms of section 41(1). • Internal audit is auditing 100% not on a SAMPLE basis as other municipalities, the reason for that is to reflect the total service delivery efforts of the municipality; it is the ONLY municipality which does this in the country. • The AG audited the performance measurements annually as required (part of OPCA). (Final)

42. Compliance with Audit Processes & Law (Cont) Municipal Systems Act • Section 46 – The municipality has prepared a performance report which was subjected to IA and AG audits. Municipal Systems Act – Regulations 14(1)(a)(c)(i) • The Municipality has developed and implemented mechanisms, systems and processes for auditing the results of performance measurements as part of its internal auditing process as already alluded to before. (Final)

43. Compliance with Audit Processes & Law (Cont) Municipal Systems Act – Regulations 14(1)(a)(c)(ii) • The Internal Audit Department of Emfuleni Local Municipality submits quarterly reports to the Municipal Manager and Performance Audit Committee Municipal Systems Act – Regulations14(2) (a) • Emfuleni Local Municipality has appointed Performance Audit Committee which meets quarterly, reports to Mayoral Committee (Mayco) on issues of Performance, and in so doing keeps Mayco informed in that respect (Final)

44. Compliance with Audit Processes & Law (Cont) • The Performance Audit Committee reports to the Council on matters of Performance, three reports have already been submitted to Council for this financial year. (Final)

45. Compliance with Audit Processes & Law (Cont) Municipal Finance Management Act 121(i) Preparation and adoption of annual reports: • The Annual Report for Emfuleni Local Municipality was prepared and adopted by Council. 121(3)The Annual report • Complied with Legislation required as per Section 121(3)(a) and (b). 122Preparation of Financial statements: • Emfuleni Local Municipality has compiled the annual financial statements on the basis as required by this Section basis. (Final)

46. Compliance with Audit Processes & Law (Cont) Municipal Finance Management Act (Cont) 123Disclosure on intergovernmental and other allocations 124Disclosure of Interest concerning Councillors, Directors and Officials 125 Other compulsory disclosures • The Annual Financial Statements of Emfuleni Local Municipality complied with these abovementioned Sections (Final)

47. Compliance with Audit Processes & Law (Cont) Municipal Finance Management Act (Cont) 126 Submission and auditing of Annual Financial Statements • The Annual Financial Statements of the Municipality was submitted within two months after the end of Financial Year to the Auditor-General for auditing purposes. (Final)

48. Compliance with Audit Processes & Law (Cont) Municipal Finance Management Act (Cont) • Section 62(1)(c)(ii) and 165(1)(a) • The municipality has established a functional internal audit department which have prepared a risk based annual audit plan as approved by the Audit Committee. • Section 165(1)(b) • The Internal Audit department has continuously advised the Accounting Officer and reported to the Audit Committee on the implementation of the plan in relation to internal controls, accounting procedures and practices, risk and risk management, performance, loss and compliance with other legislation. (Final)

49. Compliance with Audit Processes & Law (Cont) Municipal Finance Management Act (Cont) • 166 Audit Committee- • 166(a)The committee was established as already alluded. • 166(b) Audit Committee reviewed the AFS. • 166(c) Audit Committee responded to the Council on issues raised by AG. (Final)

50. Reporting and other compliance requirements • Compliance with reporting requirement • MFMA compliance reporting timelines adherence • Other Compliance issues • Establishment of Risk Management Framework and registers • Performance management System • Formulation of risk-based audit plans