The eThekwini Municipality has a proud record of always receiving an unqualified audit report. It has certainly been a year of interesting dynamics, award winning achievements and halting challenges in some cases, but great service delivery to the people of eThekwini. The city will always strive to improve the quality of life for residents and visitors alike as well as attract further investment to the city. To this end, the city has made a concerted effort to ensure service delivery to the poorest of the poor.
The city has done well over the last financial year and remains committed to accelerating service delivery and providing economic opportunities. The municipality continued its impressive track record in terms of service delivery with a capital spend of R 5.4 billion for 2018/19. EThekwini contributes significantly to the national fiscus, and the city has positioned itself to contribute to inclusive growth. The city has plans for the implementation of several catalytic projects. This is yet another demonstration of the commitment to transform the economic landscape of eThekwini. Despite the tough economic climate, the municipality remained in a strong and stable financial position in terms of its short and long term sustainability and viability. In continuing the long trend of unqualified audit reports, the city has once again obtained an unqualified audit report for the 2018/19 year, demonstrating the strong financial management. The overall financial situation of the municipality is sound and healthy having reported a highly solvent balance sheet as at 2018/19 year end. Due mainly to robust solvency and a lowly geared balance sheet, the credit rating of the municipality has been maintained with positive outlook.
The economic performance should be further strengthened through the implementation of catalytic projects.
Notwithstanding the financial health of the Municipality for this year being “good”, the reduced cash on hand and the increased levels of expenditure is of great concern. Over the past three years there has been a noteable trend of costs exceeding revenue generation. This has had the effect of depleting internal reserves. The significant costs that have increased substantially and need to be effectively controlled are EPWP, security and overtime costs. The increased operating expenditure needs to be closely monitored and cost savings measures need to be implemented to ensure no further erosion of cash reserves.
The financial performance for 2018/2019 is recorded in greater detail in the municipality’s Annual Report.
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The municipality’s financial performance and position is sound mainly due to the following factors:
· Consistent revenue collection rates are being achieved.
· The municipality has maintained a favourable credit rating
· The municipality operates within its annual budget, as approved by council.
· Budgets are balanced, being financed from the current financial year’s revenues from all sources.
· The municipality maintains a positive cash and investments position although this has reduced slightly over the past two financial years.
COST CONTAINMENT MEASURES
The main purpose of the Municipal Cost Containment Regulations 2019 is to ensure that the resources of the Municipality and its entities are used effectively, efficiently and economically by the implementation of cost containment measures. The regulations inter-alia state that:
i. The disclosure of cost containment measures applied by the municipality will be included in the in-year budget reports and annual cost savings will be disclosed in the annual report as required by the regulations.
ii. The measures implemented and aggregate amounts saved per quarter, together with the regular reports on reprioritization of cost savings and on the implementation of the cost containment measures must be submitted to the Council for review and resolution
Council has adopted as policy, the cost containment measures contained in the Municipal Cost Containment Regulations, 2019. It should be noted that during the budget process departments were requested to relook at certain items on the budgets with a view to cost containment. Furthermore, a separate quarterly report on the cost containment measures implemented and aggregate amounts saved per quarter and the reprioritisation of cost savings are submitted to Council for review and resolution.
1.3.6.1 OPERATING BUDGET
In respect of the 2018/19 financial year, expenditure in the amount of R 35.2 billion was fully funded from the municipality’s revenues and grants and subsidies from National and Provincial Government.
Operating Budget Performance (Current Year)
The financial performance for the six month period ending December 2019 is summarised in the table below:
Summary Statement of Financial Performance (Parent Municipality)
Description
2019/20 Original Budget
R’000
December YTD Budget
R’000
December YTD Actual
R’000
Forecast
R’000
Total Revenue By Source (Excluding Capital Transfers)
Total Operating Expenditure
(38,709,373)
38,183,380
(20,692,404)
19,325,578
(19,606,478)
18,692,367
(37,367,964)
38,756,290
(SURPLUS)/DEFICIT (525,993) (1,336,826) (914,112) 1,338,326
*(Operating expenditure forecast and original budget is stated after contribution to reserves)
53 Operational Income Performance ( 2019/20 )
Income:
The proportionate increase in Property Rates is mainly attributable to annual ratepayer payments made in advance.
The actual electricity sales revenue is lower by R 599m and this is mainly due to inclusion of energy efficiency interventions (solar water heating, heat pumps, off grid technologies) by consumers.
The decrease in Service Charges – Water of R 417m is due to the delays in the removal of the water flow restrictions. It was anticipated that the majority of these would have been removed in the 18/19 Financial year, however less than 15 % have been removed to date.
The decrease in Service Charges – Sanitation Revenue of R 186m is due to the delays in the removal of the water flow restrictions.
A decrease of R 111m in refuse revenue is mainly due to the municipality losing some of its contracts to the private sector competitors
Operational Expenditure Performance ( 2019/20 )
The total expenditure to date is 48.95% (2018: 46.6 %) of the total expenditure budget. Employee related cost is 29.92 % of the total operating costs. Repairs and Maintenance expressed as a percentage of Operating Expenditure is 8.24%. Employee Related Costs is forecasted to decrease by approximately R 37m mainly due to time taken to fill vacant posts. Bulk Purchases reflect an increase of R 104m. The higher spend is due to the impact of the winter tariff thus resulting in higher consumption leading to the higher value of purchases from Eskom. This will normalise during the Summer months.
The increase in water service expenditure of R215.8m is mainly as a result of the increased use of external service providers for the verification of meter readings and bills; as well as an increase in sand and valve purchases for the various repairs and maintenance that are being undertaken. Water expenditure is forecasted to increase by R613.4m due to the increase in Repairs and maintenance of R250m, Security Costs R26.9m, Consumables R28m, Hire charges R96.8m, Consultants – Project Management R20m, Fuel R8.7m and provision for bad debt R182m.
Sanitation expenditure is forecasted to increase by R141m due to the Consumables R6m, Fuel R 3m, Repairs and maintenance R26m, protective clothing R 2m and provision for bad debt R 102m.
ANTICIPATED OVER EXPENDITURE ITEMS
Expenditure Item
Original
Budget YTD Actual
YTD Budget
YTD
Variance Variance
%
R’000 R’000 R’000 R’000
EPWP 97,133 107,102 46,638 60,464 130.0%
Overtime – Metro Police 40,688 106,216 21,347 84,869 397.6%
Security 787,298 432,701 378,662 54,039 14.27%
1. EPWP expenditure for the year is expected to be R 248m per annum ( based on a monthly expenditure of R 20.6m ) against a budget of R 97m. Council, at its January 2020 meeting resolved to rationalize the existing number of EPWP workers over an eighteen month period. The over expenditure has been regularised in the adjustment budget.
2. Metro Police overtime expenditure is anticipated to be overspent by R 209m for the year.
3. Security costs i.r.o councillors are currently being reviewed.
54 1.3.6.2 CAPITAL BUDGET
The capital budget totalled R 7.1 billion in 2018/19 This was funded by National and Provincial grants in the amount of R 3.4 billion and R 2.7 billion being funded from Council’s internal sources, with the balance of
R 1 billion from external funding.
Capital Budget Performance (Current Year): Parent Municipality
The capital performance for the six month period ending December 2019 is summarised in the table below.
Progressive Capital Budget vs. Actual
The following Chart compares the actual spend on capital against the total approved capital budget of the Parent municipality
In the sixth months of operations, 24.28% (December 2018: 29.37%) of the capital budget has been spent. Whilst the budget is proportionately underspent, it is expected that as in the case of previous years, an acceleration of spending would occur in the ensuing months and departments are forecasting a 93.87% spend. However, per the Adjustments Budget, a spend of 99 % is forecasted.
Conditional Grants
Approximately R 5.4 billion from all sources have been received to date which represents 50% of the amount budgeted for.
- 1 000 000 2 000 000 3 000 000 4 000 000 5 000 000 6 000 000 7 000 000 8 000 000 9 000 000
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June
Budgeted Expenditure Actual Expenditure
R'000
Summary Statement of Capital Expenditure : December 2019
Description
2019/20 Budget
R’000
December YTD Budget
R’000
December YTD Actual
R’000
Forecast R’000
Total Capital Expenditure
Total Capital Financing
7 749 564
7 749 564
2 792 124
2 792 124
1 881 357
1 881 357
7 274 459
7 274 459
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