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KEY ISSUES

CORONAVIRUS: COVID 19

The coronavirus has a devastating effect on the South African economy with currently the tourism, hospitality and airlines sectors that are being impacted. As SA went into full lock down mode the impact on the GDP and all sectors were catastrophic. The City only has funds to manage and pay on going expenses for 60 days. Accordingly, there needs to be fiscal discipline and encourage all consumers to pay for services. Notwithstanding this, the city is committed to the safety and wellbeing of all citizens. Accordingly, basic services in all communities are being prioritized. Storage tanks for water are provided to all informal settlements and these will be replenished by water tankers, sanitizers and soap is made available in all informal settlement abolution blocks as well as Public facilities. Line departments will fund the additional related expenditure from anticipated savings on events and other decreases in expenditure resulting from closure of municipal facilities. In addition, where necessary budgets are being reprioritized to ensure that coronavirus related expenditure is prioritized.

UNACCOUNTED FOR WATER (LOSS IN DISTRIBUTION)

Water loss management is an on-going project aimed at reducing the real water losses in the municipal area.

Despite the numerous interventions, the water loss in distribution continues to be a serious challenge. The primary objective of the NRW reduction activities is to reduce the NRW levels from a rolling average of 51 % at present to a targeted and sustained value of 25 % by June 2025. The estimated water losses were due mainly to illegal connections and vandalism as well as the aging infrastructure. The challenge faced in reducing water losses are compounded by the mushrooming of informal settlements, some of which are illegally connected to the water supply as well as uncontrolled development in rural areas.

In line with the current NRW WCWDM Plan, EWS is implementing a number of water loss interventions as follows:

· Pressure Management

· Pipe Replacement Programme

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· Metering of Key infrastructure which include:

o Installation of bulk meters to informal settlements;

o Installation of meters in rural areas;

o Installation of meters in housing project areas; and

o Upgrade to Industrial, ccmmercial and institutional (ICI) water meter installations

· The key initiatives undertaken by Water Operations department include the following that address real losses:

o Reduce response times to leaks and bursts;

o Proactive leak detection and repair;

o Maintenance of key water infrastructure (bulk pipelines, PRVs, reservoirs, pump stations)

· Public awareness regarding the water conservation and general good practices for water consumption by the community undertaken by our Auxiliary Service Branch.

War on Leaks Programme

The aim of the project is to reduce water consumption and unnecessary loss thereby allowing additional consumers to be serviced. Also once the consumption is reduced, consumers are then more likely to afford the monthly bill and increase the Unit’s revenue collection. This will also allow for the cleansing of data and validation billing records, in the process.

The War on Leaks Programme and the implementation strategy aims at:

1) Providing on-site and appropriate exposure for new plumbing trainees in the plumbing environment;

2) Articulating the training such that NRW is dealt with at grass-root level; and 3) Preventing and avoiding unnecessary water consumption and high debt write-off

The project aims at targeting housing projects within reservoir zones with high water loss ( high minimum night flows ). The roll-out includes carrying out elementary repairs to the internal plumbing installations such as leaking taps, solar geysers and toilet cisterns where the unseen loss is allowed to flow directly into the sewer system undetected.

UNFUNDED MANDATES AND FUNDING REALITIES

Certain non-core functions and services which in terms of the constitution fall under the responsibility of National or Provincial Authorities are being provided by the municipality. These functions include the provision of Health Services, Libraries, Museums, and Housing. The reduction or non – payment of subsidies for these services require the municipality to allocate its own resources to make up the shortfall. The provision of housing is dependent on budget allocations by the Provincial and National governments and the actual funding received does not make it possible for the municipality to reduce the ever increasing housing backlog. These unfunded/ underfunded mandates pose an institutional and financial risk to the municipality as substantial amounts of own funding is being allocated to non-core functions at the expense of basic service delivery. Although much has been done to address the development challenges of the city, meeting targets will continue to depend on financial support from Provincial and to a larger extent National Government. Despite additional grants received, the levels are still not sufficient to meet unfunded mandates. It is hoped that the DDM that is currently being implemented will address this issue. Given adequate levels of funding, the city could meet the huge challenges it still faces.

The costs of unfunded mandates for 2020/21 are as follows:

R’m

Libraries 246.1

Health – Other than municipal health services 108.0

Museums 58.9

Housing: New Development and Hostels 328.1

Formal Housing 45.9

787.0

44 CLIMATE CHANGE / SUSTAINABILITY

ADDRESSING CLIMATE CHANGE

Being a coastal city with 97 km of high- developed coastline, Durban is particularly vulnerable to sea level rise and impacts on the river system caused by climate change. The areas particularly vulnerable to sea rise are coastal wetland and dune ecosystems. Climate change is likely to cause a number of challenges for eThekwini Municipality, linked to global impacts such as increased temperatures, extreme weather events (e.g flooding and drought) and rainfall variability. It is anticipated that climate change will have a significant impact on the weather variability and agricultural production within KZN which will in turn impact on the most vulnerable rural communities. The remedies are to be sought in effective conservation measures, responsiveness to climate changes with regard to choice of agricultural production techniques and products in planning/implementing judicious water management practices and in preparedness for extreme weather conditions.

Globally, cities are recognized as the most vulnerable to the severe impacts of climate change, and consequently, play a critical role in implementing the global agendas such as the Paris Agreement. The Durban Climate Change Strategy (DCCS) is the tool by which climate change is addressed in eThekwini Municipality. The integration of mitigation and adaptation in this strategy which includes a property tax incentive is viewed as a global lead.

Following Durban signing up for the C40 Deadline 2020 programme where cities committed to have a plan of action that will detail their roadmap towards a Low Carbon Development Pathway by 2020, Durban has become the first city in the global such to produce its own Climate Action Plan. The strength of Durban’s climate action also lies in the very functional, multidisciplinary governance structure on climate change issues. Within the governance structure, Political oversight is provided by the Municipal Climate Change Committee chaired by the Mayor and administrative oversight via the DCCS Technical Task Team.

A GREEN NEW DEAL FOR DURBAN

At the C40 World Mayors Summit in Copenhagen attended by the Mayor last year, support for a Global Green New Deal was agreed to and a global climate emergency was recognised. Through the Global Green New Deal, cities have reaffirmed their commitment to protecting the environment, strengthening the economy, and building a more equitable future by cutting emissions from the sectors most responsible for the climate crisis.This includes :

· putting inclusive climate action at the center of all urban decision-making to secure a just transition for those working in high-carbon industries and

· correcting long-running environmental injustices for those disproportionately impacted by the climate crisis – people living in the Global South generally, and the poorest communities everywhere.

What does this mean for Durban?

A first focus for a Durban Green New Deal will be in renewable energy. In 2019 National Treasury released an Economic Policy position paper on inclusive growth for South Africa. Section 2.1 highlighted that the energy sector has experienced various challenges over the past decade and municipalities are likely to be affected. Grid defection has serious implications for municipalities who rely on electricity sales as a revenue source.

Municipalities are encouraged to consider alternative sources of revenue generation to ensure their developmental mandate is fulfilled. However, this scenario can be mitigated by deploying more Solar PV systems on municipal- owned infrastructure, accelerating micro-grids in response to energy poverty and investing in building new generation infrastructure closer to the highest load consumption.

The city’s critical infrastructure departments will diversify the capital budget in order to reduce consumption through appropriate use of energy efficiency and small scale renewable energy interventions. To date, the city’s consumption represents 5% of the total energy demand with electricity generation contributing massively to carbon emissions. The landfill site in Springfield and Marianhill possesses an incredible opportunity to execute more than 50MW of Solar PV Utility-scale. The municipal buildings could be optimised by installing rooftop Solar PVs to generate sustainable electricity with free fuel (sun). Water infrastructure through effective management of wastewater treatment works (WWTW) could be utilised to drive own power generation via biogas conversion into electricity. According to the pre-feasibility study carried by Durban Invest in 2018, the marine energy has an estimated capacity of 52GW of energy that is potentially available along the coast. The City’s current business model is no longer sustainable, owing to the growth of cheap and clean renewables. New investment is required to increase the share of renewables in the distribution network.

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The renewable energy transition requires not only technology change, but also equitable access to energy and economic opportunity within the energy sector to ensure a just and fair energy transition. Through linking expansion of the renewable energy sector value chain to job creation and Radical Economic Transformation the Green New Deal can generate many thousands of job and entrepreneurship opportunities and Durban can position itself as a leading manufacturing hub. The City will work with all role players to ensure that this goal is attained.

Energy poverty is particularly in informal settlement and includes those households living in backyard shacks. Poor households are burdened with relatively high energy costs, often in excess of 10% of their income. A target of eThekwini’s DCCS strategy states that “All citizens must have access to sustainable energy forms to meet their needs”. Micro-grids and distributed energy resources could be rolled out for low income households including the combination of solar water heaters, solar charges, biogas digesters and energy-efficient lighting. These would replace fuel sources such as paraffin, wood and candles that contribute to the risk of fires and air pollution and can create thousands of new jobs and entrepreneurship opportunities.

The city has developed Energy Strategic Roadmap and Integrated Resource Plan to provide eThekwini with direction on how to best meet future energy demand using the least-cost scenario. This examines a variety of economic, regulatory, and market-driven scenarios to help respond to changing energy demands while continuing to provide reliable power at the lowest cost. As part of the broader DCCS, eThekwini is committed to achieving 40% of renewable energy share by 2030 and 100% by 2050. The city’s energy transition will create jobs for eThekwini residents during the construction phase of these sectors. The total value chain for possible job creation in the green economy sector based on eThekwini’s targets is 21.6/MW which means about 17 712 jobs could be created going to 2030.

The alternative energy sources have reached grid parity where the levelised cost of energy (LCOE) is now cheaper than Eskom tariffs. To effectively comply with National Treasury’s cost containment regulations, the municipality is committed in reducing reliance from Eskom. If our energy plan is approved, the city will make an application for special ministerial determination to procure energy from other energy carriers or Independent Power Producers (IPPs). On approval by the Minister of Energy, the city will establish Municipal Independent Power Producer Procurement Programme (MIPPPP) with a special focus on building new energy generation infrastructure closer to the load centres. This will ultimately give SMME’s an opportunity participate in the circular economy.

A second focus of a Green New Deal for Durban is an Integrated River Management Programme. Climate change and rapid urbanization are resulting in significant probabilities of flood risk to residents of eThekwini Municipality.

The risk to infrastructure and civilians will be catastrophic without a proper early warning system in place. The Coastal Stormwater and Catchment Management Department is developing a Forecast Early Warning System (FEWS) linking hydraulic models, rainfall data and warning system in order to mitigate flooding and similar disasters. The system essentially functions as a data management system, operating real time, 24/7, to receive/obtain all available atmospheric data (such as rainfall and wind), and execute models to estimate predictions such as river water levels. The FEWS project spheres have continued making significant strides in the implementation of the system. The FEWS system has grown its modelling capabilities and is continuously improving collaboration with local and international partners.

The financial effects of climate change can be just as devastating as the physical ones. Unexpected disaster management costs relating to storms, flooding, unusually huge waves, erosion, fires, and droughts can impact significantly on the City’s budget. Climate change runs the risk of undoing all of the development gains of the last two and a half decades, and for a city such as Durban, climate change adaptation in all sectors has become one of the Municipality’s top development priorities. These business risks form the economic rationale for going green and cost benefit analysis is a key tool that the City will be using to develop a business case for transforming the river system. This is being done in the C40 City Finance Facility supported TRMP Business Case project costing R 12, 8 m which kicked off in August 2018 and will culminate in the preparation of a long-term Business Case supported by Cost Benefit Analysis at the end of 2020. The Business Case will lay the foundation for an Integrated River Management Programme. Whilst much work needs to be done on a costing framework, it is roughly estimated that some R10 bn of capex and R 15 bn of opex will be required to 2030 from a range of sources including the eThekwini budget, businesses and property owners in the municipality, national departments and global climate funds.

The C40 CFF Business Case will be a key tool in raising these funds and the resources will be deployed in a campaign of pitching to major potential funders as of late 2020. As with renewable energy, a Green New Deal in river management could generate thousands of jobs and become the focus of youth skills development, enterprise development and leadership development. Through upscaling initiatives like Sihlanzimvelo, Ocean Champs and Durban Green Corridor it is estimated that some 10 000 -15 000 job opportunities could be created in the medium term whilst also protecting the value of Durban’s beaches, estuaries and riverine corridors both for tourism and as community amenities.

46 IMPACT OF BULK TARIFF INCREASES

Both, the Eskom and Umgeni Water Board (UWB) tariff increases have been well above inflation. The price elasticity of demand has been reached. Accordingly, sales are going down. However, prices are still going up. This is an anomalous situation. It is not sustainable. This is resulting in consumers moving off the grid. This is

impacting on our collections and the financial viability and sustainability of the Municipality.

The Cost Of Electricity: Eskom

Electricity prices have dramatically outpaced inflation over the past decade (ever since the 2008 electricity supply shortage crisis). Above are the Eskom tariffs from 1988 to 2019, plotted against CPI (Consumer Price Index) or inflation over the same period. From 2007 to 2019, Eskom’s electricity prices have increased by about 446%, whilst inflation increased by 98% over the same period. A difference of 348%. This means that electricity prices have increased more than 4.5 times faster than inflation over this period. The higher prices for electricity put a squeeze on the affordability of the municipal basket of goods and services and the payment rate.

Umgeni water Board UWB): The Cost of Water

NB: The CPI is based on the latest CPI as at 1 July of the financial year concerned.

From the graph above, it can clearly be seen that the UWB tariff increases have been well above inflation. In 2018/2019 the UWB tariff increase was 13.7% against inflation of 5.18%. The tariff increase was 2.65 times greater than inflation in 2018/2019.

47 DURBAN TRANSPORT / IRPTN

The subsidy from the KZN Department of Transport is fixed on an annual basis in accordance with the DORA allocation. Any changes in the monthly subsidy above the KZN DOT portion impacts on the city’s budget. The escalation formula (which takes into account changes in fuel prices, labour rates, etc.) to determine the subsidy rate per kilometre directly impacts on the city's contribution as a result of provinces subsidy being fixed. Due to various issues between the operator and the city, mainly the spiraling debt ( R 520m as at end January 2019 ) due to the city as a result of non-payment of bus lease charges, a settlement agreement was entered by and between the operator and the city. In terms of the settlement agreement matters raised by the operator are to be tabled to the appointed adjudicator. The adjudication process has commenced. The non-payment has a negative impact on the cash-flow of the city.

IPTN -

Operational costs - in terms of the Public Transport Network Grant guidelines, costs are grouped into direct and indirect costs. The intention is to get the fare revenue to fund the direct costs, however the transport authorities recover on average only between 30% to 50% of direct operating costs from direct passenger revenues from existing BRT systems.

Indirect costs can be funded by the grant on the following basis: -

70% in year one, 70% in year two and 50% from year three onwards. As the operations commence, there will be ongoing refinement in the service plan to ensure that costs are minimized and revenue is enhanced.

In addition to municipal rates to fund the shortfall in operating costs over the short to medium term, alternative revenue streams, example land value capture, advertising revenue, parking meter fees, congestion charges, development charges, etc. are required to fund the operational costs as passenger revenues increase. Currently the city funds in the region of 5% of rates towards public transport, with the introduction of IPTN additional city funding will be required. As per the draft financial model, based on an operational service plan to respond to passenger demand, additional rates contributions in the region of 3% to 4% are required to fund shortfalls for phase 1. The rollout of all nine corridors could result in public transport consuming approximately 25 % - 30 % of the rates base.

This is clearly not sustainable and unaffordable. Accordingly, the operating model needs to be critically reviewed.

THEFT OF ELECTRICITY

Infrastructure theft is rampant across the city and has far reaching consequences for the municipality as well as communities. The nature of the distribution network leaves it vulnerable to theft by would-be criminal elements of society. The theft of infrastructure is an ongoing challenge that plagues the unit on a daily basis. The ramifications which range from streetlight outages to wide-scale electricity outages to communities across the region. These incidences of theft not only hurt the municipality financially, but also translate to health hazards to nearby customers. Incidences of live wires left cut and unattended as well as small to large scale outages are just a few of the ramifications experienced as a result of infrastructure theft. Normal outages caused by apparatus failure and equipment age are inevitable when operating a distribution grid, however the scourge of infrastructure theft increases the problem many times over. The municipality is trying by all means possible to curb this negative phenomenon as consequential loss continues to increase.

Theft of electricity and infrastructure has led to devastating and tragic consequence such as loss of life as well as damage to infrastructure. Over the past few years the municipality is faced with a challenge of illegal connections, especially in informal settlements. Legitimate customers also experience continuous outages due to overloaded circuits. Illegal connections are costing the municipality about R 199 million annually. Huge efforts are expended in curbing theft, however, the trend is exacerbated by electricity prices and a weakened economy.

To mitigate this trend, regular sweeps, disconnections and removal of tampered installations are carried out.

Furthermore, the massive electrification of informal settlements is expected to reduce the potential of illegal connections and have a positive impact on the number of theft incidents of electrical cables. The issue is a challenge and the municipality is making great effort to electrify informal settlements across the city, in order to curb the number of illegal connections. In addition, Governments amendment to the Act regarding infrastructure theft is greatly welcomed. The Electricity Unit has a team to manage infrastructure theft in hot spot areas.