nersa municipal determination on the finances of municipalities
Download
Skip this Video
Download Presentation
NERSA MUNICIPAL DETERMINATION ON THE FINANCES OF MUNICIPALITIES

Loading in 2 Seconds...

play fullscreen
1 / 26

NERSA MUNICIPAL DETERMINATION ON THE FINANCES OF MUNICIPALITIES - PowerPoint PPT Presentation


  • 129 Views
  • Uploaded on

NERSA MUNICIPAL DETERMINATION ON THE FINANCES OF MUNICIPALITIES. PORTFOLIO COMMITTEE ON ENERGY. Presenter: | National Treasury | 30 July 2013. Layout of presentation. Overview of municipal service delivery responsibilities

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' NERSA MUNICIPAL DETERMINATION ON THE FINANCES OF MUNICIPALITIES ' - ishmael-tanner


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
nersa municipal determination on the finances of municipalities

NERSA MUNICIPAL DETERMINATION ON THE FINANCES OF MUNICIPALITIES

PORTFOLIO COMMITTEE ON ENERGY

Presenter: | National Treasury | 30 July 2013

layout of presentation
Layout of presentation
  • Overview of municipal service delivery responsibilities
  • Link between municipal service delivery responsibilities and the regulation thereof
  • Relationship between the functional and fiscal frameworks of local government
    • Composition of local government fiscal framework
    • Size of municipal budgets
    • Municipal electricity revenues, expenditures and surcharges
    • NT initiatives underway to improve management of municipal finances
  • Proposals for the way forward
slide3
Local Government Service Delivery Responsibilities : Roles of municipalities and oversight responsibilities of national government
local government has very specific service delivery responsibilities
Local government has very specific service delivery responsibilities

Storm water

Traffic and parking

Building regulations

Municipal public transport

Water (potable)

Electricity reticulation

Sanitation

Refuse removal

Cemeteries

Fire fighting

Municipal health services

Municipal planning

Municipal roads

legislative and regulatory oversight over the performance of municipal functions
Legislative and regulatory oversight over the performance of municipal functions
    • A municipality has the executive authority to administer matters listed in Part B of Schedules 4 and 5 of Constitution, including electricity and gas reticulation (s156)
    • Various clauses in the Constitution allows for national oversight, monitoring and support of municipalities in performing these functions
      • A municipality’s performance of its functions listed in Schedules 4B and 5B are subject to legislation so as to ensure the effective performance of these functions by municipalities (such legislation maynot compromise or impede a municipality’s ability or right to exercise its powers and functions)
  • Municipal electricity reticulation in defined in Electricity Regulation Act (ERA) as the trading or distribution of electricity and includes services associated therewith
  • Various provisions in ERA enables oversight by national government and the electricity regulator (NERSA) over municipal electricity reticulation:
    • A municipality must ensure a sustainable electricity service by adhering to norms and standards (s27(f)). The Minister of Energy may prescribe compulsory norms and standards for reticulation services (s35(4)(d))
    • Various departments are also responsible for the regulation of municipal service provision generally, including electricity provision, in terms of their legislation (Municipal Systems Act and Municipal Finance Management Act)
role of nersa versus municipal council in municipal electricity tariff determination
Role of NERSA versus Municipal Council in municipal electricity tariff determination
  • Since 2011/12 NERSA has issued guidelines for municipal tariffs which require municipalities to submit distribution forms (D-forms) by 30 October
    • Municipalities are required to submit their applications to NERSA within the prescribed deadlines. Not all municipalities comply with these deadlines
  • NERSA annually communicates a guide price increase to municipal distributors
    • The average benchmark allows for (a) bulk purchases (70%); (b) reasonable energy losses; (c) salaries and wages (10%): (d) repairs and maintenance (6%); (e) capital charges and other costs (4%); and (f) other costs (10%)
  • NERSA considers applications from on a case by case basis based on the information submitted via D-forms. Final determinations are communicated to municipalities and also published on NERSA intranet
  • There is a two-pronged approval process:
    • A municipal council approves the annual budget of a municipality, which includes all municipal tariff increases
    • A municipality may not impose a tariff that is not approved by NERSA. A municipality must therefore submit to its Council for approval a municipal electricity tariff that complies with the NERSA approval processes
municipal base tariff and surcharge
Municipal base tariff and surcharge

Future process (to be instituted once norms and standards are put in place on municipal surcharges)

Cost of providing

service xx

Refurbishment and

maintenance, etc xx

Reasonable rate of

return xx

Base tariff to be

regulated by

regulator/Minister xx

Maximum surcharge

rate xx

Tariff approved by

municipal council xx

Current process

Cost of providing

service xx

Refurbishment and maintenance, etc xx

Surcharge xx

Tariff payable by xx

consumer as approved by

Municipality

Regulator/Minister

Surcharge currently still forms part of tariff approved by Regulator (falls under the 10% “Other Costs”)

slide8
Relationship between local government functional (service delivery) and fiscal (revenue and expenditure) frameworks
the whole local government fiscal framework is designed to finance municipal service delivery
The WHOLE local government fiscal framework is designed to finance municipal service delivery

Transfers and Grants

Municipal own revenues

Operating revenues

Direct transfers

Rates and taxes

Equitable share & RSC levy replacement grant

Municipal operating budget

Service charges

National / provincial operating grants

Sources of capital funding

Municipal borrowing

Surplus / cash-backed reserves

National / provincial infrastructure grants

Municipal capital budget

Indirect transfers

how is the local government fiscal framework lgff structured
How is the local government fiscal framework (LGFF) structured?
  • Own revenues fund services for the non-poor and businesses
    • Reliance on own revenue promotes accountability and responsiveness
  • Transfers are intended to fund services to the poor (capital and operational costs)
      • Transfers account for less than 15% of operating budgets for most metros and more that 75% for rural municipalities
      • Transfers account for a much higher proportion of capital budgets in all municipalities
      • Municipalities with little economic activity (rural municipalities) are much more transfer dependent
municipal operating revenue
Municipal operating revenue

.

Revenues (gross) from service charges are the largest source of municipal revenue – but expenditures first need to be deducted to determine “net” revenues

budgeted electricity operating and expenditure revenu e
Budgeted electricity operating and expenditure revenue
  • Total expenditure comprise of estimated bulk purchases
  • The electricity revenue is declining- due to high bulk increases
  • The scope for surcharges has diminished over the years
electricity net surplus by category of municipality
Electricity net surplus by category of municipality

Electricity net surplus by category of municipality

  • Although metros are still generating surplus from electricity; this operating surplus has started to diminish
  • Other categories are operating at a loss
  • Rapid increase in bulk tariffs has impact on this revenue
  • Customers may find electricity unaffordable
  • Consequently municipalities are buffering the impact of bulk tariff increases and absorbing the impact of bad debt; cash flow impact
slide15

Implications of electricity bulk increases on available municipal revenue pool

  • Large municipal surcharges on electricity was a valid concern in past
  • Electricity bulk increases (also impact of economic situation) have limited the ability of municipalities to levy surcharges

Property Rates

Grants

Other

Municipal Income

Municipal Services

??Fall in Surcharges??

Water

Sanitation

Refuse

Electricity

Roads

Fire Fighting

Development

Street Lighting

Municipal Income

Levels of surcharges levied in past

Current surcharges

Property Rates

Grants

Other

etc

many municipalities do not have cost reflective tariffs consequently operating at a loss
Many municipalities do not have cost reflective tariffs; consequently operating at a loss

An analysis of the 17 non-delegated municipalities 2013/14 MTREF – Trading Services

electricity as a means of debt collection
Electricity as a means of debt collection

Source: Ekurhuleni Metropolitan Municipality – Collection Rates

municipal challenges as it relates to municipal tariff setting revenue management and budgeting
Municipal challenges as it relates to municipal tariff setting, revenue management and budgeting
  • Although much progress has been made by municipalities in combating poverty and economic growth, challenges still exists in the system of local government
  • The major challenge is to get the basics of revenue management right
  • This refers to paying attention to integrity of billing information, accuracy of bills and dedicated managers to build administrative implementation systems that integrate each component of the revenue value chain
  • Certain municipalities struggle to collect outstanding debts, especially the smaller municipalities
  • In addition many municipalities’ taxes and tariffs are inappropriately structured (service tariffs are not fully reflecting the costs reasonably associated with rendering the service)
  • Some municipalities do not fund repairs and maintenance of infrastructure adequately; consequently high level of non-revenue water and electricity
national treasury budget reforms
National Treasury budget reforms
  • National Treasury has taken various initiatives to address the challenges in previous slide:
    • The revenue management initiative - create awareness and guide municipalities with practical solutions to improve business processes relating to the root causes of poor data integrity, inaccurate billing, customer queries and ineffective policy implementation
    • Development of the Standard Chart of Accounts for Local Government in line with the Municipal Budget and Reporting Regulations to improve the quality of municipal financial information
    • Introduction of financial modelling to assist municipalities with management accounting (costing), tariff determination and cost benefit analysis for capital projects
revenue management initiatives
Revenue management initiatives
  • The approach is to provide practical support to municipalities so that they can address the “root causes” of their billing problems
  • The revenue management initiatives will focus on the largest seventeen municipalities(metros and larger secondary towns) and can be extended to other municipalities as per their request
  • Expected outcomes- maximisation of revenue collection, introduction of effective debt management practices and achieving alignment between revenue management policies and the implementation thereof
  • Key focus areas- revenue value chain; debtor management; policy implementation and customer relations management
financial modeling and tariff setting methodology for municipalities
Financial modeling and tariff setting methodology for municipalities
  • Financial modeling will target all costing activities with particular focus on tariff determination, cost benefit analysis for capital projects
  • The model will enable municipalities to determine the real cost of municipal services provided
  • A tariff modelling tool will ensure a consistent approach to tariff determination processes across municipalities; provide for scenario planning
  • The uMhlathuze Local Municipality in the KwaZulu-Natal Province has been identified as a pilot project for developing a financial modeling and tariff setting methodology for municipalities
  • Once the pilot project has been completed a working committee(s) will be established with all role-players including sector departments such as Department of Water Affairs, Department of Energy etc.
proposals for the way forward
Proposals for the way forward
  • Department of Energy should monitor and enforce the implementation of NERSA approved tariffs
  • Improve on consultation processes when municipalities draft their annual budget
  • Improve the public understanding of NERSA process and linkages with municipal budgeting processes
ad