PRESENTATION TO SELECT COMMITTEE ON FINANCE ______________________________ 20 NOVEMBER 2008

PRESENTATION TO

SELECT COMMITTEE ON FINANCE ______________________________

20 NOVEMBER 2008

CONTENTS

1. Introduction

2. Budget performance

3. Revenue collection

4. Performance of conditional grants

5. Intergovernmental relations

6. Alignment of IDP and PGDP

7. Compliance with MFMA

8. Service delivery

9. Other key projects

10. Assistance to the Poor Scheme

11. Capacity constraints

12. Credit rating outcome

13. Conclusion

1. INTRODUCTION

• Population - 1,1 million• Households - 289 000• Area covered - 1950 km²• Capital Budget - R1.9 billion• Operating Budget - R5.2 billion

Ratios as at 30 June 2008

TARGET ACTUAL

Personnel Costs as a percentage of Total Operating Income 30.00% 25.3%

Repairs and Maintenance as a percentage of Total Operating Income 9.00% 9.50%

Capital Budget Spending 95.00% 98.67%

Net Debtors to Annual Operating Income 15% 12.5%

Annual Debtors Collection Rate 98.00% 98.59%

Creditors Turnover (from date of receipt of invoice) 30 Days 27 Days

Debt Servicing Costs to Annual Operating Income 12% 1.3%

Loan Debt to Income 12% 10.4%

Current Ratio 1.54:1 1.43:1

Own Revenue Generation 88.00% 84.8%

2. BUDGET PERFORMANCE

2. BUDGET PERFORMANCE (continued)

SOURCES OF REVENUE AS AT 30 JUNE 2008

ORIGINAL BUDGET 2007/08

ACTUAL 2007/08 % Actual/Budget

Property rates 607,878,660 587,886,646 96.7

Service charges 1,777,599,780 1,795,795,795 101.0

Interest earned - external investments 128,293,700 183,781,377 143.3

Interest earned - outstanding debtors 62,005,230 89,638,612 144.6

Fines 32,825,840 19,433,557 59.2

Licenses and permits 6,762,390 7,141,521 105.6

Government grants and subsidies 1,143,812,410 760,337,059 66.5

Rental of facilities and equipment 13,899,730 12,952,898 93.2

Income for agency services 1,028,200 1,092,774 106.3

Other income 198,329,670 186,484,726 94.0

Gains on the disposal of property, plant and equipment 22,020 482,231 2,190.0

Contributions: Other 872,160 0 0.0

Total Revenue 3,973,329,790 3,645,027,196 91.7

OPERATING REVENUE 2007/08

Int. earned - ext. investments

3.6%

Other Income33.4%

Gov. Grants and Subsidies15.2%

Property rates11.8%

Service Charges36.0%



PLANNED OPERATING EXPENDITURE VERSUS ACTUAL BY ITEM AS AT 30 JUNE 2008

ORIGINAL

BUDGET 2007/08ACTUAL 2007/08

% Actual/ Budget

Employee related costs 1,162,623,990 1,264,406,907 108.8%

Remuneration of Councillors 42,118,450 37,824,627 89.8%

Bad debts 41,314,240 60,820,880 147.2%

Collection costs 2,885,880 2,234,944 77.4%

Contracted services 68,888,540 78,206,801 113.5%

Depreciation 254,222,820 283,294,864 111.4%

Repairs and maintenance 302,406,110 330,013,395 109.1%

Interest paid 67,147,150 65,070,931 96.9%

Bulk purchases 726,478,390 719,787,933 99.1%

Grants and subsidies paid 45,424,640 56,253,937 123.8%

General expenses 795,929,510 559,924,336 70.3%

Loss on disposal of property, plant and equipment 0 44,881,698

Total expenditure 3,509,439,720 3,502,721,253 99.8%

OPERATING EXPENDITURE 2007/08

Depreciation, 8.1%

Contracted services, 2.2%

Other, 7.7%

Repairs and Maint., 9.4%

General Expenses, 16.0% Bulk purchases,

20.5%

Empl.related costs, 36.1%


2007/08 CAPITAL BUDGET/PROGRAMMES

CAPITAL SPENDING COMPARED TO BUDGET - 30 JUNE 2008

Amended Total % Spent

Directorate Budget Expenditure 2007/08

Budget and Treasury 84,586,840 84,576,549 99.99

Environment and Health Service 59,167,710 56,544,493 95.57

Economic Development and Recreation and Culture 75,418,820 75,729,026 100.41

Housing and Land 20,021,840 14,079,407 70.32

Electricity and Energy 229,038,800 227,425,483 99.30

Infrastructure and Engineering 560,299,390 566,056,818 101.03

Roads, stormwater and transportation 345,839,210 348,280,288 100.71

Sanitation service 100,052,850 99,265,800 99.21

Water service 114,407,330 118,510,730 103.59

Safety and Security 35,351,320 34,301,393 97.03

2010 World Cup Office (Stadium) 790,520,000 787,199,565 99.58

Executive Mayor 11,555,060 304,016 2.63

MURP Projects 3,420,020 1,434,749 41.95

Corporate Services 52,815,590 48,892,830 92.57

TOTAL 1,922,195,390 1,896,544,330 98.67


ACTUAL CAPITAL SPENDING BY IDP PRIORITIES - 2007/08

Municipal Transformation and Development

2.8%

Good Governance and Public Participation

2.8%

Financial Sustainability and Viability

36.0%

Local - Economic Development

3.9%

Service Delivery and Infrastructure Development

54.6%


CAPITAL BUDGET BY SOURCE OF FUNDING - 2007/08

AMENDED BUDGET 2007/08 ACTUAL 2007/08

Capital Replacement Reserve 444,644,979 432,304,842

Contributions from Current Income

450,552 403,455

Grants and Subsidies - National

893,972,405890,800,248

Public Contributions 22,414,800 25,783,102

Grants and Subsidies - Province

54,725,00049,626,079

Municipal Infrastructure Programme 93,592,100 95,492,701

Provincial Housing Board Subsidies

2,901,750 2,023,876

Department of Minerals & Energy - Subsidy

22,477,85024,090,233

Housing Revolving Fund 500,640 499,897

Levies Replacement 170,341,444 172,625,619

Equitable Share 36,083,536 24,757,645

External Finance Fund 100,000,000 100,709,687

Restructuring Grant 76,753,560 75,712,880

European Union Funding 3,336,774 1,714,067

1,922,195,390 1,896,544,330


CAPITAL BUDGET BY SOURCE OF FUNDING - 2007/08

Grants and Subsidies-National47.0%

Levies Replacement9.1%

Capital Replacement Reserve22.8%

Grants and Subsidies-Province

2.6%

Public Contributions1.4%

Contri from Income0.1%

European Union Funding0.1%

Housing Revolving Fund0.1%

DME Subsidy1.3%

Restructuring Grant4.0%

External Finance Fund5.3%

Equitable Share1.3%

PHB Subsidies0.1%

MIG5.0%


3. REVENUE COLLECTION

• Accurate account database.

• Improved monitoring and maintenance of meters.

• All Assistance to the Poor households on prepaid meters.

• Improved Customer Care.

• Prepaid holders in arrears - % of their purchases offset against arrears.

• Continuous monitoring of water leaks.

CONDITIONAL GRANTS AS AT 30 JUNE 2008

Name of Grants

Name of organ of

state

Total funds received

Total expenditure

Reasons for delay

Did Municipality comply with

grant conditions?

Financial Management Grant NT 500,000 758,807 N / A Yes

National Electrification Programme DME 15,657,000 16,822,253 N / A Yes

Municipal Infrastructure Grant DPLG 152,750,230 114,556,875 N / A Yes

Restructuring Grant NT 100,000,000 79,925,096 N / A Yes

Effective disaster management DPLG 1,500,000 1,424,760 N / A Yes

MSIG - Project Consolidate DPLG 0 3,675,756 N / A Yes

FIFA 2010 World Cup (Construction of Stadium) NT 730,495,896 798,293,056 N / A Yes

FIFA 2010 World Cup (Transport or PTIF) NT 132,000,000 75,882,975 N / A Yes

Motherwell Urban Renewal Programme DPLG 16,768,205 10,563,329 N / A Yes

TOTAL 1,149,671,331 1,101,902,907 96%

4. PERFORMANCE OF CONDITIONAL GRANTS

4. PERFORMANCE OF CONDITIONAL GRANTS (continued)

Reasons for over-/underexpenditure

• Financial Management Grant – increased spending due to training courses attended and improvement of financial systems, covered by the underspending of the grant in the previous financial year.

• Municipal Infrastructure Grant – Additional allocation received for flood relief (R57 m). On track with spending in 2008/09.

• Restructuring Grant – has been fully utilised. Grant ceased end of 2007/08.

• MSIG – Expenditure for 2007/08 financial year relates to grant received in the 2006/07 financial year. Assist in implementing E Learning, Attorney and Query Management systems.


• World Cup Soccer (Stadium) – Funds received in the 2006/07 financial year, utilised in 2007/08.

• World Cup Soccer (Transportation) – Delay in the awarding of certain contracts as a result of redesign. Five contracts have now been awarded (G Mbeki, Kempston, Harrower, Heugh, New Brighton and Fettes/Theale Roads) and construction is in progress.

• Motherwell Urban Renewal Programme – Underspending due to unresolved land ownership issues for the Xhosa Village, land to be acquired for Motherwell Golf Course.

ACHIEVEMENTS

• Financial Management Grant – Employed five interns, who are being rotated in all sub-directorates within Budget and Treasury.

• Municipal Infrastructure Grant – Bulk Sewer and Water services installed, water reticulation and sidewalks, all in previously disadvantaged areas.

• Restructuring Grant – assisted in implementing the General Valuation, new Billing System, fixed asset register.

• MSIG – Interface with the new billing system, e.g. E Learning and Attorney Management system.

• Motherwell Urban Renewal Programme – Upliftment of previously disadvantaged areas by providing essential services.


5. INTERGOVERNMENTAL RELATIONS

• The Municipality participates in intergovernmental relations structures, such as:

Premier’s Co-ordinating Forum Technical Support Group Munimecs (close liaison between municipal directorates and their counterparts) Departmental Forums

• Sector departments participate in the IDP process. • Further interaction is also taking place in the following areas:

2010 FIFA World Cup− Provincial Co-ordinating Committee− Stadium costs

− Transportation infrastructure − Operational hosting funding

• Work with DBSA, especially with regard to MURP Project Management. Possible external funding from DBSA will be pursued.

5. INTERGOVERNMENTAL RELATIONS (continued)

• Intergovernmental relations challenges:

Unfunded mandates − Libraries − Health − Provincial roads

− Housing delivery and lack of multi-year housing budget allocation

Delay in processing of EIA’s.

Delay in receipt of DWAF invoices for bulk water purchases.

Payment of outstanding service charges (Government debt) (current amount due: R53 million).

Electricity tariff increase by ESKOM and threats to investment.

6. ALIGNMENT OF IDP AND PGDP

The IDP and PGDP are aligned in terms of key performance and focus areas, as reflected below:

Municipal key performance areas Provincial key performance areas

Service delivery and infrastructure development

• Fighting poverty• Infrastructure development

Municipal transformation and organisational development

• Public sector transformation• Human resources development

Local economic development • Manufacturing diversification and tourism

Finance financial viability and management

• Same

Public participation and good governance • Same

7. COMPLIANCE WITH MFMA

• The Council complies fully with the 14 key MFMA priorities set by National Treasury. • The Council’s Supply Chain Management Policy was adopted in October 2005. • The following Bid Committees are in place:

Specifications Committee Evaluation Committee Adjudication Committee

• Annual Financial Statements were submitted by 31 August 2008.

• Audit Steering Committee is in place and operational.

• The Municipality has a functional Internal Audit Division.

• Audit fees to the Auditor-General are paid fully and timeously.

7. COMPLIANCE WITH MFMA (continued)

• Audit qualifications reduced from 17 in 2005/06 to 1 in 2006/07.

• 2007/08 Audit complete and awaiting Auditor-General’s report (no basis for qualification has been identified as yet).

• Annual reports and the Council’s Oversight reports that comply with legislation are produced annually.

• Positive feedback was received from National Treasury regarding the Municipality's oversight and annual reports for 2006/07 financial year.

• Cluster System was adopted by Council to ensure integrated and co-ordinated service delivery.

• Quarterly financial and non-financial performance reports are produced through SDBIPs.

• Budget Performance Reports are submitted quarterly to the Council’s Budget Performance Monitoring Forum.

7. COMPLIANCE WITH MFMA (continued)

• Integrated IDP/Budget Process Plan is annually developed and implemented, taking into account stakeholder involvement and timelines.

• Section 71 reports are submitted timeously.

• Budget and Treasury Directorate structured as per the MFMA.

• Performance agreements are in place for the Municipal Manager and other Section 57 employees.

• Annual risk audits were performed and risk registers developed in line with annual audit plan.

Type of service Sept 2008/

09target

Annual target

Sept 2008/

09actual

% of households with access to electricity

97% 98% 97%

Number of erven connected to electricity

N/A 5 222 3 155

% electricity losses in line with NERSA

8% 7,1% 6,32%

Number of people connected to hot water load control

27 500 55 000 27 500

Three renewable energy projects are under implementation. The Municipality is working with Coega to find other alternative sources of energy.

8. SERVICE DELIVERY

Type of service Sept 2008/09target

AnnualTarget 2008/09

Sept 2008/09actual


97% 98% 97%


2 000 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

Total number of households in the Metro – 289 000 households

• Electricity provision


09target

Annual target

Sept 2008/

09actual


97% 98% 97%


N/A 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

8. SERVICE DELIVERY (continued) Water and sanitation provision

93% of households have access to a basic level of water.

100% of households in the Metro will have access to water within a 200 m radius

through the installation of standpipes in informal areas.

- On target to meet December 2008 deadline.

91% of households have access to basic level of sanitation. Alternative sanitation methods are under investigation for use in the informal

settlements, to meet the 2010 target. December 2007 target met for the eradication of buckets in the formal areas. 100% of formal households have access to sanitation, except in two areas,

namely -

Kuyga and Kleinskool, where contractors abandoned sites.

- Kuyga: Contractor on site due for completion in April 2009.

- Kleinskool: To commence in January 2009 due for completion in

October 2009. Currently, 15 000 buckets are still in circulation in informal settlements as a

means of sanitation (will be addressed in conjunction with housing delivery

programme).


09target

Annual target

Sept 2008/

09actual


97% 98% 97%


N/A 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

• Refuse removal

Approx. 99% of residents have access to a basic level of refuse removal.

Illegal dumping remains a challenge. Ward-based cleaning programme has been introduced in 24 wards and will

be expanded to cover 30 wards during the current financial year.

8 Co-operatives are also assisting in litter-picking and street sweeping. Educational programmes are being implemented, as well as identified

official dumping sites.

8. SERVICE DELIVERY (continued)


09target

Annual target

Sept 2008/

09actual


97% 98% 97%


N/A 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

• Roads

Road maintenance backlog (subsidised roads)


NO DESCRIPTION

LENGTH

(KM)

BACKLOG

(M)

1 Resurfacing tar roads 462 R54

2 Rehabilitation tar roads 57 R81

3 Rehabilitation concrete roads 6.4 R18

4 Rehabilitation bridge structures 95 R204

TOTAL 525.4 (excl. BDGS) R357


09target

Annual target

Sept 2008/

09actual


97% 98% 97%


N/A 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

• Roads (continued)

Roads maintenance backlog (unsubsidised roads)


NO DESCRIPTION

LENGTH

(KM)

BACKLOG

(M)

1 Resurfacing tar roads 2112 R 131

2 Rehabilitation tar roads 164 R197

3 Rehabilitation concrete roads 68 R 63

4 Rehabilitation bridge structures 15 R 18

5 Tarring of gravel roads 400 R1.0 billion

TOTAL 2744 (excl. BDGS) R1.4 billion


09target

Annual target

Sept 2008/

09actual


97% 98% 97%


N/A 5 222 3 155


8% 7,1% 6,32%


27 500 55 000 27 500

• Roads (continued)

Progress with regard to roads during first quarter of 2008/09 financial year are as follows:

Type of service Sept. 2008/09target

Sept. 2008/09actual

Explanation of variance

Km of roads tarred 10 km 5 km

Locating position of existing underground services and relaying same, on some major contracts, has delayed implementation. This situation will improve in the following quarters.

Km of sidewalks tarred 3 km 3,7 km

Km of roads resurfaced 10 km 1 kmAnnual resurfacing tenders are now awarded and the situation will improve in the next quarter.

Km of roads rehabilitated/ reconstructed

2 km 0 kmEIA delay the process, however, Contracts are now in process of being awarded.

Km of roads graveled 20 km 20 km


• Upgrading of various sports facilities:

The Municipality has set aside R120 million over a three-year period to provide and upgrade the following sports facilities:

(a) New facilities:

- New multipurpose centre, Despatch - R4,5 million

- 2 informal sports fields, Despatch – R5 million (2009/10)

- Versatile sports ground, KwaNobuhle – R4,5 million

- Multipurpose Sports Facility, Northern Areas – R3,5 million

- Develop new multi-purpose centre, Northern Areas – R4,5 million

- Develop new multi-purpose centre, Missionvale Area – R4 million

- New multi-purpose centre, Wells Estate – R4,2 million

- New swimming pool, KwaNobuhle – R3,5 million

9. OTHER KEY PROJECTS

(b) Upgrading of facilities:

- Jubilee Sports Field – R3 million

- Finnis Street Sports Field – R2 million

- Gelvandale Playing Fields – R50 000

- Kleinskool Sports Field – R2 million

- Gelvandale Swimming Pool enclosure – R2,5 million

- Gelvandale Stadium – R3 million

- Reinstatement of Zwide Swimming Pool – R300 000

- Zwide Stadium – R1,5 million

- Veeplaas, upgrading of changerooms and concrete seating – R2 million

- KwaDwesi, new changerooms, soccer and cricket fields – R2,5 million

9. OTHER KEY PROJECTS (continued)

• Inner-city regeneration and urban renewal.

• Establishment of municipal Police Service and exploring funding models.

• The Municipality is on course to meet all 2010 FIFA World Cup requirements.

• In addition to the stadium, the Municipality is currently implementing other major related projects focusing on roads and transport.

• Bulk Services to support the Coega IDZ.

9. OTHER KEY PROJECTS (continued)

10. ASSISTANCE TO THE POOR SCHEME

• The Council adopted an Assistance to the Poor Policy.

• An Outreach Programme focusing on the unregistered indigent took place from April 2008 to August 2008:

− 10 000 new customers registered for the Assistance to the Poor Scheme

• Total ATTP: currently 106 682 out of a total of 289 000 households

• ATTP Scheme currently provides the following:− Free 8 kl water (monthly)− Free 75 kwh electricity (monthly)

• Total budget for Assistance to the Poor Scheme – R365 million

• 81 unemployed people were trained as plumbers and are repairing water leaks in indigent households throughout the Metro.

11. CAPACITY CONSTRAINTS• FINANCIAL

Unfunded mandates; e.g. provision of health services, roads, libraries and housing. Funds to provide for Coega Bulk Services (Water & Sanitation).

FIFA 2010 World Cup Budget [capital and operations]. Sustain the Capital Replacement Reserve [CRR].

• HUMAN RESOURCES

Technical skills shortage (especially civil and electrical engineers). Balancing staffing requirements with personnel expenditure target.

• SERVICE DELIVERY

Lack of adequate funding for maintenance backlogs. Secure and sufficient energy requirements for both domestic users

and investors. Cost of electricity. Lack of external contractor capacity. EIA delays in project approvals.

• Aa3.za – Long-term issue rating with stable outlook.

• Issued for both 2007 and 2008.

• Rating based on Municipality’s strong financial performance, good liquidity and cash management.

• Multi-year budgeting clearly reflects goals for next three years.

12. CREDIT RATING OUTCOME

Issues that require assistance from Government:

• Government debt to municipalities.

• Unfunded mandates.

• Zero rating on agency fees.

• Hosting Costs for World Cup.

• Exemption on import duties for World Cup related goods.

• Housing delivery allocation to be gazetted timeously and on a multi-year basis.

• Consideration of funding the tarring of gravel roads from housing subsidy programme.

13. CONCLUSION

THANK YOU

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PRESENTATION TO SELECT COMMITTEE ON FINANCE ______________________________ 20 NOVEMBER 2008

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