Funding Options / Models
Electricity Indaba
Presenter: Marissa Moore| 16 March 2012
The whole local government fiscal framework is
designed to finance municipalities
Municipal own revenues
Transfers and Grants
Direct transfers
Operating revenues
Equitable share &
RSC levy
replacement grant
Municipal
operating
budget
National / provincial
operating grants
Rates and
taxes
Service
charges
Sources of capital funding
National / provincial
infrastructure grants
Indirect transfers
Surplus / cashbacked
reserves
Municipal
borrowing
Municipal
capital budget
2
Chapter 3 Intergovernmental relations and the local government fiscal framework
What is the current reality in municipal
electricity distribution?
• The whole local government fiscal framework is designed to
finance municipalities, including the municipal electricity
distribution function
– Need an appropriate balance between own resources, grants and
borrowing
• Free basic electricity to the poor is funded through equitable share,
including increases in bulk electricity prices
– Need an appropriate balance between investing in new infrastructure
and maintaining existing infrastructure
• Tariffs to be used to fund new infrastructure and maintenance for
services provided to non-poor households
• Indigent policies to be appropriately targeted towards the poor and such
cross-subsidisation be explicit
3
National government continues to provide
significant support to LG
Transfers by type, 2006/07 - 2012/13
Massive
real
growth in
national
transfers
Significant
policy
reforms
Targeted
capacity and
systems
support
4
• Municipal Budget and Reporting Regulations
• Three-year allocations and payment schedules for national and
provincial transfers (DoR Act)
• Improved in-year financial monitoring
• Support in planning and budget reform
• R3bn spent on Siyenza Manje between 2007 and 2010 to provide
hands-on support to municipalities
• Additional support through conditional grants
Key issues impacting on municipal performance
• Municipal budgets must be funded and realistic
–
–
–
–
–
Depleted cash reserves – operating at the absolute margin
General under-pricing of municipal services – bankrupting municipalities
Revenue projections are unrealistic – not based on requirements of the MFMA
Operating expenditures are too high – driven by non-priority spending
Capital budgets are too ambitious
• Maintenance of existing assets needs urgent attention
–
–
–
–
Lack of key technical skills – qualified managers, engineers and technicians
Weak asset management systems
Spending on repairs and maintenance inadequate to maintain assets
Maintenance spending is reactive, and so is more costly than planned
maintenance
• Own funding of capital budgets needs to increase
–
–
–
Increased grant reliance, and reduced own funding of the capital budget
Tariffs and operating budgets not making provision to fund capital
Municipalities (other than metros) not adequately leveraging private finance to
fund economic infrastructure
5
Municipalities continue to face important
fiscal challenges
Municipal own
contribution to
capital expenditure,
2006 to 2012
Municipal own
contribution to capital
spending
Pay attention to revenue
management
Municipal own
contributions are
now less than 50%
of total capital
spending
• Get the basics right to ensure revenue value-chain is complete
• Integrity of billing information, accuracy of billing systems and ability to
collect
High outstanding
consumer debts
• In December 2010, municipalities were owed a total of R62.3 billion. This
represents an increase of 10.8% from the same month in 2009
Under-pricing of
services
• Municipalities not following the Systems Act principles for tariff setting
• On average, tariffs must reflect the cost of rendering the service
Inadequate spending on
repairs and
maintenance
• Cutting spending on maintenance is not seen as politically sensitive, but will
have a disastrous impact on the reliability of services
6
Chapter 4 Revenue and expenditure trends in local government
Scope exists to improve access to private finance
300
250
200
R billion
Demand for
capital
infrastructure
remains high
150
100
50
Scope
exists for
further
growth in
private
capital
funding
Lending
dominated
by the
DBSA
7
Metros and secondary
cities
Growth
Town based municipalities
Backlogs
Mostly rural
municipalities
Rehabilitation
• National transfers are the major source of finance for municipal capital
budgets – they provided 51% of capital funding in 2010/11
• External loans contributed 20.7% as a funding source in 2010/11. This is
down from 24.9% in 2006/07.
Is expenditure supporting sustainable
electricity service delivery?
2008
Household access
to electricity
improved
340 000 more
households had
access to electricity
in 2009 than 2008
6.2% more
households received
free basic electricity
in 2009 than 2008
Expenditure
increased from
R15bn in 06/07 to
R59bn in 12/13
Province
Eastern Cape
Free State
2009
Num ber of
Free basic electricity
Num ber of
consum er
services
consum er
units receiving Num ber of
%
units receiving
basic electricity consum er
basic
services
units
electricity
811 953
282 175
34.8%
872 170
Free basic electricity
services
Num ber of
%
consum er
units
312 975
35.9%
576 790
345 545
59.9%
602 434
379 981
63.1%
Gauteng
1 802 607
706 822
39.2%
1 829 044
724 178
39.6%
Kw aZulu-Natal
1 283 813
165 505
12.9%
1 327 485
192 265
14.5%
Limpopo
1 072 824
271 992
25.4%
1 157 388
319 559
27.6%
Mpumalanga
559 499
220 106
39.3%
591 867
234 183
39.6%
Northern Cape
227 033
100 021
44.1%
243 075
107 788
44.3%
North West
579 004
119 919
20.7%
588 298
129 443
22.0%
Western Cape
1 173 637
568 958
48.5%
1 209 566
552 314
45.7%
Total
8 087 160
2 781 043
34.4%
8 421 327
2 952 686
35.1%
• Operating revenue grows at above 20% per year in line with increases in the
bulk price of electricity
• Expenditure grew at 26.7% per year between 2006/07 and 2009/10
• Budgeted capital expenditure on electricity increases from R4.7bn in 2009/10 to
R5.7bn in 2011/12, before declining to R4.9bn in 2012/13
• Compared to 2010/11, municipalities’ budgeted capital investment in electricity
declines by 14% in 2011/12 and again by 7% in 2012/13
8
Chapter 9 Electricity
Electricity distribution losses are increasing
Electricity distribution losses, 2005/06 - 2009/10
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
6.5%
6.0%
6.7%
7.5%
7.5%
7.5%
7.5%
1.0%
3.0%
7.0%
7.0%
7.0%
7.0%
M e tr os
Nelson Mandela
Ekurhuleni
City of Johannesburg
12.0%
12.0%
12.0%
12.0%
12.0%
11.0%
City of Tshw ane
7.7%
10.0%
12.1%
12.0%
10.0%
10.0%
10.0%
eThekw ini
5.1%
5.1%
5.0%
5.0%
5.1%
5.0%
5.0%
City of Cape Tow n
8.9%
8.3%
8.4%
9.3%
9.3%
9.3%
9.3%
10.7%
11.9%
14.0%
7.5%
8.0%
8.0%
8.0%
8.3%
9.4%
9.1%
15.0%
16.0%
16.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
9.5%
9.1%
8.9%
9.5%
9.5%
Se condar y citie s
Buf f alo City
Mangaung
Matjhabeng
Emf uleni
Mogale City
Msunduzi
9.5%
New castle
uMhlathuze
7.0%
4.0%
6.0%
4.0%
5.0%
5.0%
Govan Mbeki
5.6%
10.6%
12.7%
12.0%
16.0%
16.0%
22.7%
21.7%
33.4%
28.0%
30.0%
30.0%
8.8%
10.5%
7.3%
10.0%
10.0%
10.0%
Sol Plaatje
18.0%
18.0%
18.0%
15.0%
16.0%
16.0%
Polokw ane
12.6%
12.2%
8.1%
Rustenburg
22.1%
18.3%
20.8%
16.3%
Tlokw e
10.1%
2.4%
0.7%
2.0%
2.0%
2.0%
5.0%
7.0%
7.0%
7.5%
7.0%
7.0%
7.0%
7.0%
9.0%
9.0%
9.0%
Emalahleni
Steve Tshw ete
16.0%
10.0%
Mbombela
Madibeng
City of Matlosana
Drakenstein
Stellenbosch
George
12.3%
3.7%
5.5%
Source: National Treasury local government datab ase
9
Abbreviated Extract: MFMA Circular 58 – 2 of 2
•
•
Eskom price will increase by 16% on 1 July 2012. Municipalities are urged to
examine cost structure of their electricity undertakings and apply to NERSA for
electricity tariff increases that are cost reflective and ensure continued financial
sustainability
NT supports the use of the following formula, proposed by NERSA, for calculating
municipal electricity tariff increases:
–
MTI = (B x BPI) + (S x SI) + (R x RI) + (C x CCI) + (OC x OCI) , Where
•
•
•
•
•
•
•
•
MTI = % Municipal Tariff Increase
B = % Bulk purchases / increase
S = % Salaries / increase
R = % Repairs / increase
C = % Capital charges / increase
OC = % Other costs / increase
Each municipality needs to design an IBT structure that is appropriate to its specific
circumstances, and ensures an appropriate balance between ‘low income
customers’ and other domestic, commercial and business customers, and the
financial interests of the municipality
Municipal surcharge issue to be considered
10
Key areas to address existing challenges in
electricity distribution
• National (policy, regulation and support)
– National strategy to clarify roles and responsibilities, set norms
and standards
– Regulator to align efficiency and costs in line with the national
strategy
– Capacity support
• Building the requisite skills in municipalities to plan, budget, roll-out
and maintain service (full value chain)
– Differentiation between municipalities in which services can be supplied
in a viable manner and areas where investment support is needed
– Intern programme for technical capacity building
• Municipalities
– Need for increased investment in maintenance and refurbishment
of municipal electricity distribution infrastructure
– Municipalities need proper electricity distribution asset registers to
inform refurbishment and maintenance plan
11
Role of National Treasury
• National Treasury is undertaking budget reforms to provide for
transparency in electricity budgeting and expenditure
– Regulations introduced
– Standard Chart of Accounts being developed
• Ongoing work between NT and NERSA
– NERSA, in collaboration with Office of the Accountant General, to introduce
standardised reporting with respect to municipal electricity function
– NERSA, Eskom and SALGA to address implementation challenges wrt
Inclining Block Tariffs
• A review of the current LG fiscal framework currently underway, which
will complement reforms already introduced
– LG equitable share has been reformed over last few years to direct additional
resources to small and poor municipalities
– Substantial increases made to LG equitable share to enable municipalities to
cater for the price increases to provide Free Basic Energy to poor households
• Norms and standards for electricity surcharges as per Municipal Fiscal
Powers and Functions Act
– Regulation of municipal tariff setting and norms and standards on municipal
surcharges to be aligned
12
Way Forward – 2 of 2
• National Treasury is undertaking budget reforms to provide for
transparency in electricity budgeting and expenditure
– Greater understanding of revenue and expenditure
– Electricity distribution leads to increased revenue, greater ability to
borrow funds and leverage to improve the collection of other
monies owed to the municipality
• Requiring skills and investment that not all municipalities have
the capacity to manage
– Intern programme for technical capacity building
• Differentiation between municipalities in which services can be
supplied in a viable manner and areas where investment support
is needed
13
,
Thank You
14
,
SUPPORTING INFORMATION
15
Operational Revenue
Table 9.2 Budgeted electricity operating revenue, 2006/07 – 2012/13
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
% Ave annual
growth
Medium-term estimates
2006/07 - 2009/10 2009/10 2012/13
R million
Operating revenue
Category A (Metros)
16 811
18 759
21 978
30 931
39 440
48 662
60 516
22.5%
25.1%
Category B (Locals)
9 209
9 838
11 412
16 322
19 520
20 244
23 647
21.0%
13.2%
Secondary cities
5 321
5 511
6 447
9 449
11 893
12 819
15 446
21.1%
17.8%
Large towns
1 679
1 857
2 140
2 940
3 715
3 652
4 000
20.5%
10.8%
Small towns
1 864
2 058
2 387
3 294
3 384
3 266
3 626
20.9%
3.3%
Mostly rural
345
412
438
639
528
506
574
22.8%
-3.5%
8
14
17
14
18
10
10
23.7%
-11.9%
26 028
28 611
33 408
47 267
58 978
68 916
84 172
22.0%
21.2%
Category C (Districts)
Total
Source: National Treasury local government database
16
Operational Expenditure
Table 9.4 Electricity operating expenditure by category of municipality, 2006/07 – 2012/13
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
Medium-term estimates
% Ave annual
growth
2006/07 2009/10
2009/10 2012/13
R million
Operating expenditure
Category A (Metros)
9 746
10 884
13 040
19 934
25 546
32 547
41 556
26.9%
27.7%
Category B (Locals)
5 406
5 855
7 113
10 869
13 238
14 403
17 450
26.2%
17.1%
Secondary cities
3 154
3 426
4 109
6 376
8 087
9 035
11 362
26.4%
21.2%
Large towns
958
1 015
1 236
1 952
2 451
2 621
3 000
26.8%
15.4%
Small towns
1 092
1 180
1 494
2 130
2 343
2 342
2 682
24.9%
8.0%
Mostly rural
201
235
275
412
358
405
407
27.0%
-0.4%
20
29
46
27
10
10
12
15 172
16 769
20 199
30 831
38 794
46 960
59 018
Category C (Districts)
Total
11.4% -24.0%
26.7%
24.2%
Source: National Treasury local government database
17
Capital Expenditure
Capital budgets for electricity, 2011/12 - 2013/14
Budgeted Expenditure - Electricity reticulation (capital)
2011/12
R Thousands
2012/13
2013/14
Growth rates - capital
Budgeted capital spending as
percentage of budgeted revenue
from billed service charges
11/12-12/13 12/13-13/14
2011/12
2012/13
2013/14
Buffalo City
BUF
27 445
20 000
20 000
-27%
0%
2%
1%
1%
Cape Town
CPT
667 449
648 879
731 863
-3%
13%
8%
6%
6%
Ekurhuleni Metro
EKU
312 654
229 933
254 333
-26%
11%
3%
2%
2%
eThekwini
ETH
873 567
730 238
816 422
-16%
12%
10%
7%
6%
City Of Johannesburg
JHB
783 917
889 165
975 465
13%
10%
7%
7%
6%
Mangaung
MAN
141 560
147 767
163 777
4%
11%
10%
9%
8%
Nelson Mandela Bay
NMA
86 000
118 000
73 000
37%
-38%
3%
4%
2%
City Of Tshwane
TSH
518 800
591 900
554 235
14%
-6%
7%
7%
5%
3 411 392
3 375 882
3 589 095
-1%
6%
7%
6%
5%
Total Metros
18
Capital Expenditure Continue
Capital budgets for electricity, 2011/12 - 2013/14
Budgeted Expenditure - Electricity reticulation (capital)
Growth rates - capital
2011/12
R Thousands
2012/13
2013/14
11/12-12/13 12/13-13/14
Budgeted capital spending as
percentage of budgeted revenue
from billed service charges
2011/12
2012/13
2013/14
Matjhabeng
FS184
13 350
378
378
-97%
0%
3%
0%
0%
Emfuleni
GT421
82 844
67 411
73 699
-19%
9%
6%
4%
4%
Mogale City
GT481
43 784
148%
7%
4%
9%
Msunduzi
KZN225
60 361
5%
0%
0%
Newcastle
KZN252
42 626
31 774
32 462
-25%
2%
9%
6%
5%
uMhlathuze
KZN282
22 806
54 800
81 724
140%
49%
2%
3%
4%
Polokwane
LIM354
56 700
55 185
69 000
-3%
25%
11%
10%
12%
Govan Mbeki
MP307
0%
0%
0%
Emalahleni (Mp)
MP312
Steve Tshwete
MP313
11%
13%
Mbombela
MP322
Sol Plaatje
NC091
87 003
Madibeng
NW372
23 225
Rustenburg
NW373
97 460
28 000
39 600
-71%
Tlokwe
NW402
45 052
36 000
16 500
-20%
City Of Matlosana
NW403
26 819
17 100
17 200
-36%
Drakenstein
WC023
31 947
33 202
35 987
4%
Stellenbosch
WC024
George
WC044
Total Top 19
All other local municipalities
TOTAL
28 230
-
10 757
33 360
-
42 570
16 600
-
9 928
82 642
-
-24%
-100%
51%
44%
8%
5 000
-81%
-70%
19%
3%
1%
-
-100%
41%
8%
2%
2%
-54%
10%
7%
3%
1%
5%
3%
3%
8%
5%
4%
4%
2%
1%
61 220
0%
-
3 000
-8%
-70%
3%
57 149
28 675
35 400
-50%
23%
14%
6%
6%
730 114
454 983
553 811
-38%
22%
7%
4%
4%
1 339 655
970 045
951 988
-28%
-2%
14%
10%
9%
5 481 161
4 800 910
5 094 895
-12%
6%
8%
6%
5%
19
Performance
20
Size of LG equitable share
Equitable Share
2012/13
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
21
Basic Services share on LGES
BasicServices
10,000,000
RThousand
8,000,000
6,000,000
4,000,000
2,000,000
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
Financial Year
Water
22
Sanitation
Refuse
Electricity
2012/13
Free Basic Electricity
Table 9.7 Consumer units receiving free basic electricity services from
municipalities, 2008 and 2009
2008
Province
Eastern Cape
Free State
2009
Num ber of
Free basic electricity
Num ber of
consum er
services
consum er
units receiving Num ber of
%
units receiving
basic electricity consum er
basic
services
units
electricity
811 953
282 175
34.8%
872 170
Free basic electricity
services
Num ber of
%
consum er
units
312 975
35.9%
576 790
345 545
59.9%
602 434
379 981
63.1%
Gauteng
1 802 607
706 822
39.2%
1 829 044
724 178
39.6%
Kw aZulu-Natal
1 283 813
165 505
12.9%
1 327 485
192 265
14.5%
Limpopo
1 072 824
271 992
25.4%
1 157 388
319 559
27.6%
Mpumalanga
559 499
220 106
39.3%
591 867
234 183
39.6%
Northern Cape
227 033
100 021
44.1%
243 075
107 788
44.3%
North West
579 004
119 919
20.7%
588 298
129 443
22.0%
1 173 637
568 958
48.5%
1 209 566
552 314
45.7%
Total
8 087 160
2 781 043
34.4%
8 421 327
2 952 686
Source: Stats SA, Non-financial census of municipalities for the year ended 30 June 2009
35.1%
Western Cape
23
INEP Connections
Indicator
Number of additional
households electrified per
year*
Number of new bulk
substations built per year
Number of additional
substations upgraded per
year
Kilometres of new medium
voltage power lines
constructed per year
Kilometres of existing
medium voltage power lines
upgraded per year
Programme
Past
Current
Projections
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
National Electrification
Programme
123 364
145 157
191469
180 000
180 000
180 000
180 000
National Electrification
Programme
National Electrification
Programme
6
4
4
7
6
6
6
13
3
3
3
10
10
10
National Electrification
Programme
140km
310km
350km
350km
350km
350km
350km
National Electrification
Programme
92km
241km
200km
200km
200km
200km
200km
24
LG Equitable Share
• LG Equitable Share (LGES) formula targets four basic
services
– Electricity, water, sanitation and refuse (also environmental health)
• Number of poor households with (full allocation) or without access to basic
services/infrastructure (partial allocation)
• Poor household currently defined as households with incomes of ≤R800 per month
(2001 Census data)
– R6.7b was added to LGES over baseline for the 2010 MTEF for
electricity bulk increases
• Subsidised electricity provision (inclining block tariffs)
– Costs recouped at higher levels of use through the increased
tariffs
– The inclining block tariff result in the tariff for poor customers
declining by 8 % compared to the 2009/10 tariff and 18 % in
2010/11
– Implementation challenges to be addressed
25
Support to the poor through Free Basic Energy
• Funding distribution infrastructure backlogs will require
additional increases in tariffs
– Higher tariffs control demand for electricity
• Free Basic Services was announced in 2000 and Electricity
Basic Services Support Tariff (EBSST) Policy was introduced
in 2003
– EBSST policy prescribes that an allocation of 50kWh per month
be provided to all poor households connected to national
electricity grid in both Municipal and Eskom areas of supply
• Poor households cushioned by the free basic electricity
policy, inclining block tariffs and solar water geyser
programme
- Secret -
26
Monthly Income as cut off for Indigent
Policy (DCoG data)
Province
Number of Munic
R940
R1100
R1880
other
Western Cape
30
1
0
13
14
Eastern Cape
45
1
6
15
14
Northern Cape
32
0
3
15
12
Free State
25
2
5
4
9
KwaZulu-Natal
61
3
14
12
21
North West
25
0
11
5
5
Gauteng
14
0
1
7
3
Mpumalanga
21
1
5
7
5
Limpopo
30
0
16
3
5
283
8
61
81
88
Total
27