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George van Schalkwyk

Understanding the variables involved in municipal tariff determination. George van Schalkwyk Director: Inter-Services Liaison City of Cape Town - South Africa Past President: IMFO. Municipal Services. Electricity Water Sanitation Refuse Removal Municipal Property Rates.

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George van Schalkwyk

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  1. Understanding the variables involved in municipal tariff determination George van Schalkwyk Director: Inter-Services LiaisonCity of Cape Town - South AfricaPast President: IMFO

  2. Municipal Services • Electricity • Water • Sanitation • Refuse Removal • Municipal Property Rates

  3. Why do we have Municipalities? • Provide services that businesses avoid • Capital outlay too risky • Areas that must be serviced spread too wide • Difficult to charge beneficiaries for services • Free riders cannot be avoided • Constitutional right to services • Local Government powers and functions • Wellbeing of the community the driving force

  4. Municipal Services – The Paradox • Access to basic level of services to the Indigent • “Free services” must be paid for by others • Some funding from National Government • Some funding from rates account • Balance must be carried in the specific service • Cross subsidisation a reality • How to spread the financial load

  5. Spreading the Financial Burden • Funding is a corporate challenge • All services are providing free services • Consolidated municipal accounts • Tariff setting a corporate responsibility • Managing cash flow is a corporate responsibility • Credit control and debt collection • Political oversight over processes • Serving and reporting to the community

  6. Municipal Tariff Setting: Rates • Residential Properties • Valuation rebate of R200 000 all properties • Tariff half of non-residential • Senior citizen rebate • Indigent rebate • Non Profit / Public Benefit Organisations • Farming activities

  7. Municipal Tariff Setting: Water • Residential Properties • “Free” 6 kiloliters per month for all properties • Sliding scale to curb usage of potable water • “Free” 4.5 kiloliters per month for properties valued R300 000 and below • Indigent rebate • Non-residential subsidising residential

  8. Municipal Tariff Setting: Sanitation • Residential Properties – 70% of water usage • “Free” 4.2 kiloliters per month - all properties • Sliding scale to curb usage of potable water • “Free” 3.15 kiloliters per month for properties valued R300 000 and below • Indigent rebate • Non-residential subsidising residential

  9. Municipal Tariff Setting: Refuse • Residential Properties • Value up to R100 000 – Free bin per month • Value up to R150 000 – 75% rebate • Value up to R350 000 – 50% rebate • Value up to R400 000 – 25% rebate • Registered Indigents – Free bin per month

  10. Municipal Tariff Setting: Electricity • Residential Properties • Monthly consumptions up to 450 kWh per month will receive the first 50 kWh free • Lifeline tariff structure for consumptions below 450 kWh per month • Consumptions below 350 kWh heavily subsidised • Residential tariffs subsidised by others

  11. Services require tariffs • Services and service levels defined by the IDP • Expenditure informed by the services budgeted • Revenue need caused by the expenditure • Revenue must be underpinned by tariffs • Tariffs determined via approved policies • By-Laws make policies legal binding documents

  12. Income Foregone – Funding Sources • Water & Sanitation R 248 M • Solid Waste R 308 M • Electricity R 153 M • Housing R 84 M • Rates R1055 M • Total R1848 M • Grant from Government R 749 M • Contribution from Rates R1099 M

  13. Customers – the Ability to Pay • Non-residential customers can offload costs • The VAT can be claimed back • The expenditure reduces income tax liabilities • Increase selling prices of their products • Profits can be reduced • Residential customers pay from after tax income • No opportunities to offload municipal costs

  14. Corporate reality of setting tariffs • Need a corporate view • Clients have a limited budget • Economical situation in the region • Prospects of government subsidies • Assisting public benefit / non profit organisations • Provide community / indigent support • Seed capital – they raise more own funds • Review their outcomes and accountability

  15. Long term reality of setting tariffs • Need a short / medium / long term view • Clients receiving 1st account with new tariffs • Client’s be able to pay the increased tariffs • Effect on cash flow is critical • Impact on audit report & credit rating • Future tariff increases based on current tariffs • Future affordability of municipal accounts Medium Term Revenue and Expenditure Framework

  16. Understanding the variables involved in municipal tariff determination The Cape Town scenario cannot work for your services and areas The concepts can be used but it must be adapted to meet your own socioeconomic circumstances

  17. Thank you for your participation Any question or guidance? George.vanschalkwyk@capetown.gov.za

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