WSDP: MODULE 3
10.
Financial Profile
10.1
Capital Funding
TOPIC 10: FINANCIAL PROFILE
10.1.1 Capital Income for Water and Sanitation
The CoCT is faced with the challenge of continuing to deliver a high level of service to its
citizens with ever increasing cost to produce a reliable source of clean water. These
increased cost related to capital project cost as well as operation and maintenance costs.
The impact of the rapid increase in the cost of electricity will be particular significant in the
increased cost of maintaining Blue and Green Drop Certification.
All internal policies, procedures and monitoring systems are in place to ensure that financial
risks are limited. There has been a huge investment in the SAP electronic system to improve
planning, monitoring, revenue collection, asset management and financial risk management.
Table 1: Future Sources of Capital Budget for the Water and Sanitation Services
Funder
USDG
2011/12 Budget
223.4
CMIP
2013/14
2012/13
165.9
234.0
0.0
0.0
DWAF
0.4
0.0
0.0
AFF (now CRR)
2.6
18.1
30.0
12.1
17.0
0.0
424.1
450.0
575.0
20.3
20.5
20.0
682.9
671.5
859.0
BICL (now CRR - DC)
EFF
Other
TOTAL
3.67
10.1.1.1 Future trends and goals (capital budget)
The future budget is expected to grow R 859 Million.
Table 2: Projected Capital Budget of Water and Sanitation Services
Area (R'million)
2011/12 Budget
17.3
2013/14
2012/13
33.8
135.9
269.6
315.0
346.0
242.2
172.9
198.5
24.5
19.6
12.6
64.2
68.4
44.3
23.9
22.0
27.0
15.0
15.0
14.0
13.5
7.5
6.5
3.0
1.0
0.0
0.3
0.4
0.4
9.3
16.0
73.9
682.9
671.5
859.0
Bulk Water
Reticulation
Wastewater Treatment
Water Demand management
EAMS
Informal Settlements
Meter Replacement
Information Technology
Technical Operation Centre
Masterplanning
Other
TOTAL
Source: Water and Sanitation – Capital Projects
Investment in reticulation, wastewater treatment and bulk water infrastructure is still
expected to dominate Water and Sanitation’s budget going forward – at levels of 79.02%
and 81.51% in 2011/12 and 2012/13 respectively. This increase in bulk is as a result of the
growth of the city, increased development and densification within the urban edge. The high
expenditure on reticulation can be seen as a strategic need for pipe refurbishment and pipe
replacement.
10.1.1.2 Capital expenditure (budget): water
See Module 2 Topic 10
10.1.1.3 Capital expenditure (budget): sanitation
See Module 2 Topic 10
3.68
10.1.1.4
Implementation strategies (capital funds)

Optimisation of Grant funding

Increasing the CRR via income and expenditure interventions to make provision for
future infrastructure.
The strategic motivation for the split in capital expenditure was determined through a budget
prioritisation process that was determined by the Water and Sanitation Master Plan, The
Bulk Water, Bulk Waste Water, Reticulation and Water Demand section priorities.
10.2
Operating cost and income
10.2.1 Situation assessment (operating costs and income)
A steady increase in operating costs is expected into the future. As pipe refurbishment and
pipe replacement programme develops the maintenance cost should come down.
10.2.2 Operating income: tariff
The income from service charge of water supply and sanitation services is expected to be
more than 10%.
Table 3: The Projected Income of Water and Sanitation Services (as at May 2012)
(R'000)
Service charges *
Finance income *
Government grants (Operating) *
Government grants (Capital) *
Other
2011/12
2 868 417
180 000
7 833
231 843
125 551
2012/13
3 287 343
200 000
197 200
138 721
2013/14
3 702 700
211 200
239 000
144 649
Add: Inter-Departmental Charges
3 413 644
1 508 093
3 823 264
1 664 491
4 297 549
1 767 732
4 921 737
5 487 755
6 065 281
Source: Water and Sanitation; MTREF
10.2.3
Future trends and goals (operating cost and income)
10.2.3.1 Operating costs: water and sanitation
The operating budget for water sanitation supply services is just above 10.5% in 2012/13.
The escalation rate per annum is not expected to be more than 12%, thereafter.
3.69
Table 4: Projected Operating Costs of Water and Sanitation Services
(R'000)
Puchase of bulk water*
Production costs (raw water +
treatment system)
Operating costs
Salaries and wages
Maintenance and repairs
Depreciation
Finance charges
Other
2011/12
317 675
-
2012/13
334 673
-
2013/14
391 911
-
877 662
250 237
262 410
1 778 892
1 028 306
279 467
287 269
1 978 548
1 122 519
299 030
317 975
2 248 220
Total costs
Add: Inter-Departmental Charges
3 486 876
1 458 707
3 908 263
1 604 301
4 379 655
1 712 617
TOTAL COSTS
4 945 583
5 512 564
6 092 272
Source: Water and Sanitation; MTREF
10.2.3.2 Operating Income: Tariff
The income from service charge of water supply and sanitation services is expected to be
more than 10%.
Table 5: The Projected Income of Water and Sanitation Services
(R'000)
Service charges *
Finance income *
Government grants (Operating) *
Government grants (Capital) *
Other
2011/12
2 868 417
180 000
7 833
231 843
125 551
2012/13
3 287 343
200 000
197 200
138 721
2013/14
3 702 700
211 200
239 000
144 649
Add: Inter-Departmental Charges
3 413 644
1 508 093
3 823 264
1 664 491
4 297 549
1 767 732
4 921 737
5 487 755
6 065 281
Source: Water and Sanitation; MTREF
3.70
10.2.3.3 Strategic gap analysis (operating cost and income)
10.2.3.3.1 Capital budget: The high requirement for necessary infrastructure is driven
largely by growth and economic development as well as the refurbishment of current
infrastructure which places severe pressure on the City’s Capital Budget.
10.2.3.3.2 Operating budget: It is difficult to reach optimum levels of staff, maintain
acceptable levels of infrastructure maintenance and carry the impact of the capital
programme within the financial constraints during difficult economic conditions.
10.2.3.3.3 Implementation strategies (operating cost and income)
To achieve the required Capital Budget, it is necessary to maximise the use of Grant
funding and to make optimal use of the Capital Replacement Reserve (CRR) within the
financial constraints.
The pressure on the operating budget needs to be addressed via above-inflation tariff
increases and initiatives to ensure that money due to the City is collected. There is a benefit
envisaged from metering efficiency gains and data purification exercises.
General strategies:

Making adequate provision for the poor by maintaining a stepped tariff crosssubsidising the shortfall in the free basic service.

Further relief to the poor via assistance to indigent customers.

Investigation and debate into the use of Prepayment meters.

Escalated focus on the collection of debt by increasing the capacity.

Escalated focus on revenue protection and metering efficiency.

Ensuring that adequate cash reserves are maintained to cover legislated funds.
3.71
10.3. Tariff and charges
10.3.1. Future trends and goals (tariff and charges)
Table 6: Proposed Tariffs for Water Services Consumption (10%)
TARIFFS 2011/12
Domestic Full
0 ≤ 6 kl
Water that is used predominantly for > 6 ≤ 10.5 kl
domestic purposes and supplied to single
residential properties.
> 10.5 ≤ 20 kl
> 20 ≤ 35 kl
> 35 ≤ 50 kl
> 50 kl
Domestic Cluster – Bulk metered flats, cluster developments including
single title and sectional title units. An allowance of 6 Kl per unit per
month at zero cost upon submission of affidavits stating the number of
units.
R 0.00
R 4.32
R 9.22
R 13.66
R 16.87
R 22.25
R 9.33
Source: Water and Sanitation Billing.
Table 7: Proposed Tariffs for Sanitation Services
TARIFFS 2011/12
Domestic Full
properties.
-
Single
residential
70% of water consumption to a
maximum of 35 kl of sewage per month
(70% of 50 kl water equals 35 kl of
sewage)
0 < 4.2kl
>4.2 < 7.35kl
>7.35 < 14kl
>14<24.5kl
>24.5< 35kl
Domestic Cluster - Bulk metered flats, cluster developments. Including
sectional and single title units.
R 0.00
R 5.05
R 10.76
R 11.77
R12.36
R10.45
Source: Water and Sanitation Billing.
10.3.2 Implementation strategies (tariff and charges)
Implementation Strategies are outlined below:

Request to increase the tariffs in line with MTREF modeling to meet increasing
requirements.

Monitor reduction in consumption and income and adjust tariffs accordingly.
3.72
The tariffs are modelled every year and changes in consumption patterns are factored into
the annual adjustments. Increasing expenditure will require increasing tariffs. As the pattern
of usage changes the block tariff structure changes, with an increased savings there is a
need structure tariffs so as not to penalize those who are saving. There will be on-going
analysis of the changing water consumption and wastewater discharge patterns to ensure
that income will be sufficient.
As the city grows and the extent of the infrastructure grows maintenance cost increases. It is
therefore expected that tariff increases could be expected to be higher than inflation.
There is also increased need to focus on large users and poor payers. The rollout of the
demand management devise will help to resolve the situation of those constantly in arrears.
Over the period income from user charges are projected to increase.
This assumes a city growth of 1.0% per annum (of revenue generating sales), annual
increase in water demand (low water demand curve), an inflation rate of 5.6% and that the
10% restriction will continue for the next 5 years.
The reduction in revenue generating demand as a result of the WC&DM Strategy will result
in higher increases in the average tariff although not a high average cost to the consumer. In
other words the projected income from the user charges will remain the same but because of
the lower water consumption the average tariff will increase.
3.73
10.4 Free Basic Water
10.4.1 Free Basic Water Policy
The first 6 kilolitres of water supplied to all residential dwellings in the municipal area and
the first 4.2 kilolitres of sewage removed from all residential dwellings in the municipal area
is free. Fixed charges do not apply to dwellings occupied by domestic households.
A R38 Indigent Grant is applicable to the water and sanitation tariff for qualifying
households. The net result is that an Indigent household can consume an additional 4.5kl
water per month and can discharge an additional 3.15 kilolitres wastewater per month (with
sewerage disposal 70% of water consumption) without attracting any charges.
10.4.2 Subsidy Target for Free Basic Water
No changes in providing free water are planned. The number of basic service protests
happening around the country at the moment will make it difficult to change this in the near
future
10.4.3 Subsidy Target for Free Basic Sanitation
As in the case of water no changes in providing free sanitation is planned.
10.4.4 The Need to Address Extensive Leaks
Although provision of free basic water and sanitation is in place as well as an additional
allowance for indigent households there will be a constant monitoring of the quality of
plumbing being provided in low cost housing developments. Failure to check for leaks will
lead to high water consumption and high sewer flows.
3.74
10.5
Future trends and goals (charges and block tariffs)
10.5.1 Fixed charges and block tariffs: industrial for water
Table 8: Proposed Tariff Commercial and Industrial Water
TARIFFS 2011/ 2012
Commercial – Water supplied to premises
predominantly of a commercial nature
R 9.93
Industrial - Water which is used in
manufacturing, generating electricity, landbased transport, construction or any related
purpose.
R 9.93
Source: Water and Sanitation Billing.
Above inflation increases can be expected in line with the average tariff.
10.5.2. Fixed charges and block tariffs: industrial for sanitation
Table 9 inflation increases for tariffs can be expected in line with the average tariff increases.
10.5.3. Fixed charges and block tariffs: commercial for water
No changes to the structure are planned for the future.
Table 9: Proposed Tariff Commercial and Industrial Sanitation
TARIFFS 2011/ 2012
Industrial and Commercial - Schools, hospitals,
Government: National / Provincial and any
other – 95% of water consumption (* see note)
R 7.63
Source: Water and Sanitation Billing.
Above inflation increases can be expected in line with the average tariff.
10.6 Sales arrangements
The billing system is integrated with the SAP computer software. The Water and Sanitation
account is sent monthly with the rates and other services accounts. The City is divided into
20 billing / meter reading areas. Bills are sent out daily in order to cover the whole city in one
month.
Payment for municipal accounts can be easily made at any municipal office, through third
party payments (supermarkets, etc.) and electronic funds transfers (EFTs) or stop orders
through banks.
3.75
Table 10: Future trends and goals (income and sales)
Rands (R’000)
Total income (billed income and subsidies)
Total expenditure
Surplus/(deficit)
2011/12
4 921 737
4 945 583
(23 846)
2012/13
5 487 755
5 512 564
(24 809)
2013/14
6 065 281
6 092 272
(26 991)
Source: Water and Sanitation Billing.
This assumes a city growth of 1.0% per annum (of revenue generating sales), a 2% annual
increase in water demand (low water demand curve), an inflation rate of 5.6% and that the
10% restriction will continue for the foreseeable future.
10.6.1. Implementation strategies (income and sales)

The focus of the leaks project is to assist such indigent households. These households
are also encouraged to make arrangements (reasonable terms) with Council on arrears
in order to get the current accounts paid.

Internal teams appointed to increase debt management actions.

Programme in place to regularly update these properties and to ensure inclusion in
future debt processes. Programme to standardise the meters in the long term. Reports
are being put in place to identify tampered meters and take corrective action.
10.7 Metering, Billing and Income
It is important for the CoCT that the bulk meters are read regularly and that bulk meters and
meter chamber are maintained and inspected regularly for vandalism. There appears to be a
high incidence of vandalism in industrial areas where there is also a concentration of a large
number of large meters. The city has conducted a pilot on the use of AMR in an industrial
area which proved relatively successful. There is an in principle decisions to install AMR in
areas of good concentration of high consumption users.
Meter reading is also contracted out in large areas of the city
The city has by- laws in place to limit financial loss due to none payment and has an active
credit control and debt collection policy.
3.76
The following strategies will be implemented:
 Increase number meter reading contracts.

Focus of problematic meters hidden by building rubble or built over.
Invest in a
programme to systematically move meters to the outside of the properties

Put a programme in place to identify zero consumption meters as well as "low reads" as
part of meter replacement programme.

On-going program to clean up customer data, this is particular important if there is a
change in the use of billing software.

Incorporate the loading of meters into the process and ensure that Developer is billed in
the interim period.
3.77