Budget Road Show 15 to 26 April 2013

DRAKENSTEIN MUNICIPALITY 2013/2014 DRAFT CAPITAL AND OPERATING BUDGET Budget Road Show 15 to 26 April 2013 "A Place of Excellence"

Contents • Legislation • Budget related policies • Budget assumptions • 2013/2014 Capital Budget • 2013/2014 Operating Budget • Restructuring of tariffs • Baskets of tariff increases • Conclusion "A Place of Excellence"

1. Legislation 1.1 The Constitution of the Republic of South Africa, 1996 • Council approves the budget • Council approves the passing of by-laws • Council approves rates, taxes, levies and duties • Council approves the raising of loans 1.2 Municipal Systems Act, No 32 of 2000 • Section 75A: Gives Council the power to levy and recover fees, charges and tariffs • Municipal Manager must publish the fees, charges and tariffs Council finally approve (Council meeting date 22 May 2013) • Prescribes a community participation process where the local community are encouraged to participate in the preparation of the municipality’s budget "A Place of Excellence"

1. Legislation 1.3 Municipal Property Rates Act, No 6 of 2004 • Section 2: Gives Council the power to levy property rates • Section 5: Council must annually review its rates policy • Section 7: Council must levy a rate on all rateable properties • Section 8: Council may levy differential rates • Section 15: Council may in terms of its rates policy exempt a specific category of owners or properties or may grant relief through rebates to a specific category of owners of properties or to the owners of a specific category of properties • Section 30: Council may levy differential rates on the market related property values as set out in the general valuation role. The property rates calculated is based on the new general valuation roll’s market related values to be implemented as from 1 July 2013 "A Place of Excellence"

1. Legislation 1.4 Municipal Finance Management Act, No 56 of 2003 • Section 15: A municipality may only incur expenditure in terms of an approved budget – Council must approve the budget • Section 16: The mayor must table a budget to Council at least 90 days before the start of the financial year (27 March 2013) • Section 22: The approved draft budget, rates, tariffs, fees and budget related policies must be made public and the Municipality must invite the local community to submit representations in connection with the budget – purpose of the budget road show • Section 23 and 24: When the mayor table the final budget documentation to Council for approval (22 May 2013), the views of the local community must be taken into consideration. "A Place of Excellence"

2. Budget related policies 2.1 Draft property rates policy • Reviewed and revised the policy • Increased the categories of properties to enable Council to apply differential rates on the different categories of properties • Propose that the first R 150,000 of residential properties values to be exempted be increased to R 160,000 – financial support to the poor • That all residential properties receive this reduction and only start paying property rates on the values above R 160,000 – equitability issue • A rebate on property rates levied for properties in privately owned towns (areas not ordinarily serviced by the Municipality and where all rate-related services were installed at full cost by the developer) • An additional rebate for agricultural properties if the farm owner provide accommodation (2.5%), potable water (2.5%) and electricity (2.5%) to all of his permanently employed farm workers and their dependents, and, land for burial of own farm workers or for educational and / or recreational purposes to own farm workers as well as for workers from surrounding farms (2.5%) "A Place of Excellence"

2. Budget related policies 2.1 Draft property rates policy (continue) • Indigent households may receive a 100% rebate on rates levied on property values exceeding R 160,000 • An indigent household who stays on a property of a deceased owner / relative can also apply for the 100% rebate while the process of transferring of ownership takes place • Child headed families with an income less than R 2,520 per month (2 x the social grant) shall receive a 100% rebate. The Municipality may on application approve a 100% rebate should the child headed family’s income exceed R 2,520 per month • Retired and disabled persons will qualify for the following rebates: • Monthly income of R 0 to R 2,520 (100% rebate) • Monthly income of R 2,521 to R 3,400 (80% rebate) • Monthly income of R 3,401 to R 4,200 (50% rebate) • Monthly income of R 4,201 to R 5,000 (20% rebate) "A Place of Excellence"

2. Budget related policies 2.2 Draft tariff policy • Reviewed and revised the policy • The tariff policy clearly determines the following principles: • That all users of municipal services will be treated equitably (this is not the case with electricity households consumers – the conventional meters versus pre-paid meters saga) • Poor households must have access to basic services • Trading and economic services tariffs must reflect the total costs of services • Sewerage and refuse removal are economic services. Economic services revenue and costs should break-even. • This is not the case with the Municipality’s sewerage / sanitation fees that does not cover the sewerage / sanitation costs. Higher than the inflation rate fees has to be imposed by Council. Will elaborate further on this matter when the tariffs are discussed. "A Place of Excellence"

2. Budget related policies 2.2 Draft tariff policy (continue) • The tariff policy provides for six tariff types. One of these tariff types are the two to four part tariff mainly used for electricity customers • Legislation requires that all users of electricity consuming more than 1,000 units of electricity per month should be on a time-of-use (TOU) tariff (four part tariff). Council have procured some of these so-called “smart” meters and will start installing them in May 2013 at residential properties. It will take some time before all residential properties consuming more than 1,000 units per month will have installed “smart” meters. We will not apply the TOU tariff in the 2013/2014 financial year although our tariff book makes provision for such tariff "A Place of Excellence"

2. Budget related policies 2.2 Draft tariff policy (continue) • A three part tariff (basic charge, capacity charge and energy charge) for household electricity consumers with conventional and pre-paid meters were introduced as from 1 July 2012 to move towards equitable tariffs for these customers. • The draft budget and tariffs proposes a two part tariff for household electricity consumers. A fixed monthly charge to be levied against the owner of the property or consumer of services account and an energy charge for units consumed. The Municipality intends to close the gap between the tariffs levied for households with conventional meters and pre-paid meters over the next two financial years. • Bulk electricity consumers (industrial) with TOU meters will all have to migrate to the TOU tariffs as from 1 July 2013 "A Place of Excellence"

2. Budget related policies 2.2 Draft tariff policy (continue) • A single lifeline electricity tariff was charged for household customers with a 20 ampere electricity connection • This category of electricity consumers do not have to pay for any fixed charges or capacity charges as the other household customers • These customers’ average monthly consumption should be below 350 units of electricity per month • There is a lot of back yarders and families staying in a single dwelling that influences this average and therefore as per NERSA guidelines the Municipality envisage to introduce an inclining block tariff with two blocks as from 1 July 2013. • The first block of up to 350 units of electricity will be charged at the lifeline tariff and the second block (electricity consumption above 350 units of electricity) will be charged at a higher tariff "A Place of Excellence"

2. Budget related policies 2.3 Draft customer care, credit control, debt collection and indigent support policy • Reviewed and revised the current policies • Customers with electricity and water arrears must agree to the conversion to a prepayment meter (electricity pre-paid meters) • Indigent household support: • Will receive 100 units of electricity free per month – even with back yarders influencing their electricity consumption • Will receive 10 kilolitres of water free per month • Will receive a 100% subsidy on their sewerage / sanitation levy • Will receive a 100% subsidy on their refuse removal levy • Will receive a 100% subsidy on their property rates levied for the first R 160,000 of their property valuation • May on application receive a 100% subsidy on their property rates levied on their property valuation above R 160,000 "A Place of Excellence"

2. Budget related policies 2.3 Draft customer care, credit control, debt collection and indigent support policy • All registered indigent households indigent status expires on 30 June 2013 • To qualify for indigent subsidy as from 1 July 2013 indigent households needs to re-register for indigent household status • The process is simply the following: • All current registered indigent households will be visited by an indigent fieldworker during April / May / June 2013 • They will assist the indigent household with the completion of the indigent application form • The completed application form must be accompanied by a copy of the applicants ID, payslip, pension card and / or source of income • Application must also be accompanied with a sworn affidavit that the information on the application form is the truth • The Municipality will arrange for photo copy facilities and for commissioner of oaths at various venues and will inform the public where it will be through the appointed field workers and notices "A Place of Excellence"

2. Budget related policies 2.3 Draft customer care, credit control, debt collection and indigent support policy (continue) • Retired and disabled persons may on application qualify for financial assistance on their service charges (water, electricity, sewerage / sanitation and refuse removal: • R 0 to R 2,520 per month - 100% of indigent support • R 2,521 to R 3,400 per month - 80% of indigent support • R 3,401 to R 4,200 per month - 50% of indigent support • R 4,201 to R 5,000 per month - 20% of indigent support • The pre-paid electricity meters of customers with outstanding debt will be blocked as follows before any electricity are sold: • Debt 30 days and older - 50% • Debt 60 days and older - 60% • Debt 90 days and older - 70% • Debt 120 days and older - 80% "A Place of Excellence"

2. Budget related policies 2.4 Writing-off of irrecoverable debt policy • New policy in operation since 1 March 2013 • It is a policy with guidelines on when irrecoverable debt can be written-off • The policy has two special incentives to ensure that consumers (especially households) are relieved of their spiral of debt • Outstanding debt that may be taken into account for writing-off purposes are the outstanding debt of consumers just before the January 2013 billing run • The incentives will apply on the outstanding debt amounts of consumers as follows: • Paarl (28 January 2013) • Wellington, Bainskloof, Hermon, Gouda and Saron (30 January 2013) • Indigent household’s debt will be written-off in full "A Place of Excellence"

2. Budget related policies 2.4 Writing-off of irrecoverable debt policy (continue) • Special incentive 1: For each R 1 paid by a customer on the outstanding debt before the January 2013 billing run the Municipality will write-off R 1 of the outstanding debt. This will automatically apply to all customers except for government departments and schools who must apply for this incentive. For example a customer in Paarl owed the Municipality R 40,000 on 28 January 2013 and pays R 20,000 of it. The Municipality will write-off the other R 20,000. • Special incentive 2: This will only apply to household customers who do not have the financial means to make use of special incentive 1. In the case of special incentive 2 a household will be capped to pay no more than 20% of the total household’s income to the Municipality on their monthly current levies plus an instalment on the outstanding debt before the January 2013 billing run. This arrangement will run for three years where after a household consumer who honoured their arrangements will be relieved of their spiral of debt. "A Place of Excellence"

2. Budget related policies 2.5 Prioritisation model for capital assets investment • New policy • The main aim of the policy is to prioritise each capital project against an evaluation criteria and to allocate scarce available revenue sources to capital projects who obtained the highest percentages within an infrastructure category • The infrastructure categories and their allocations from the capital budget are: • Basic services infrastructure (60% of capital budget) • Economic infrastructure (20% of capital budget) • Social infrastructure (10% of capital budget) • Operational infrastructure (10% of capital budget) • Each infrastructure category may also be sub-categorised to distribute allocations proportionally within a category of infrastructure "A Place of Excellence"

3. Budget assumptions NERSA’s guideline of electricity revenue increases of 7% (not for every single tariff) and bulk purchases from ESKOM limited to 6% will have an effect on our revised electricity tariffs still to be considered by Council Cape Town’s average electricity revenue increases with 7.86% according to their draft budget documentation but not all of their tariffs increases with 7.86%. In fact it varies from -49.79% to 56.63% - see www.capetown.gov.za "A Place of Excellence"

4. 2013/2014 Draft capital budget Capital projects amounting to R 128,720,378 to be funded with own funds and borrowing funds were prioritised through the Prioritised Model for Capital Assets Investment Policy. Capital projects amounting to R 59,078,070 to be funded through government grants forms part of the capital budget . The total capital budget of R 187,798,448 are allocated to basic services infrastructure (82.1%), economical infrastructure (4.2%), operational infrastructure (6.9%) and social infrastructure (6.8%). Separate handouts are distributed to indicate which capital projects will impact on each ward. "A Place of Excellence"

4. 2013/2014 Draft capital budget Own funds: Own funds are depleted. Can only afford to contribute 4.7% of the total draft capital expenditure from own funds. Becoming dependent on grants and external borrowings. Grants: Grants from government programmes contributes to 31.5% of the envisaged capital expenditure for 2013/2014. External borrowings: External borrowings will contribute 63.9% to our capital expenditure for 2013/2014. External borrowings have been limited to 50% of our operating budget revenue "A Place of Excellence"

4. 2013/2014 Draft capital budget "A Place of Excellence"

5. 2013/2014 Draft operating budget "A Place of Excellence"

6. Restructuring of tariffs "A Place of Excellence"

7. Baskets of tariff increases "A Place of Excellence"

8. Conclusion 8.1 Council approved the draft budget, revenue streams and budget related policies on Wednesday 27 March 2013 8.2 A notice in the local news papers was advertised that the budget documentation lies open for inspection at our office buildings and libraries. It is also on our website www.drakenstein.gov.za 8.3 We also have these budget road shows as from 15 to 26 April 2013 8.4 Closing date for written comments on the draft budget, revenue streams and budget related policies is Monday 29 April 2013 8.5 The Executive Mayor and her Mayoral Committee will consider any written comments received on the draft budget, revenue streams and budget related policies on 15 May 2013 8.6 Council will consider any written comments on the draft budget, revenue streams and budget related policies as well as the Executive Mayor’s recommendations on it on 22 May 2013 "A Place of Excellence"

THANK YOU "A Place of Excellence"

Budget Road Show 15 to 26 April 2013