Overstrand Municipality’s budget and tariffs for the 2024/2025 financial year, starting 1 July, were approved by Council on Friday, 31 May 2024.

The total operational expenditure budget amounts to R1.944 billion – this includes non-cash items like depreciation.  The total revenue budget amounts to R1,837 billion (excluding capital grants received). Hence an accounting deficit of R106,9m is now reflected after the final revision.

Property rates and service charges have increased between 6% and 11%. This, despite an increasingly challenging environment, taking the following into account where tariff increases are above inflation:

• Operational costs for both Sewerage services and Refuse Services are severely impacted by fuel price hikes and strict regulatory compliance, where tanker services and refuse trucks are part and parcel of rendering a service.
• The consequence of loadshedding, with an impact on increased operational costs for these services, such as additional fuel costs to run generators during loadshedding at our bulk sewer works across the Overstrand are compounding factors contributing to increased costs.

R184.6 million has been appropriated for the capital budget of the municipality.

The larger projects to be funded by the capital budget are the following.

• Electrification of low cost housing areas (R22.3m)

• Low-cost housing services (R13.1m)
• the upgrade of pump stations and rising mains (R11m)
• the Kleinmond WWTW Refurbishment upgrade (R10.7m)
• the Hawston Sport Complex (R9.9m)

Overstrand Executive Mayor, Dr Annelie Rabie’s speech, in which she explained the 2024/25 budget in a nutshell, is published below:

Speaker,

We have invited our communities and stakeholders after the tabling of the draft budget towards the end of March 2024, to participate in the 2024/25 Integrated Development Plan (IDP) review and proposed amendment, and in the Budget process.

We have also attended to public meetings for all wards during the public participation process in April 2024, where more information was shared with our communities, inclusive of the opportunity to take questions and discuss issues raised by community members.

As mentioned at the time, a draft budget is indeed tabled for inputs from residents and relevant stakeholders.  These inputs are considered with the final IDP review and amendment and the budget, for final approval by Council before the end of May. The closing date for comments was 3 May 2024, it thus allowed sufficient time for this process.

I have also emphasized during these sessions that ward councillors must make sure the IDP ward priorities are a true reflection what is needed and wanted by their specific wards.

The administration subsequently received a revised Ward 13 priority list on 30 April, for inclusion in the Final IDP review of 31 May 2024.  The Budget Steering Committee also considered more than 170 comments from the community and other stakeholders. Inputs received largely represent comment regarding the baboon management programme and the lapse of the assignment of the function for baboon management from the Provincial Government at the end of 2024.

The Strategic Integrated Municipal Engagement (SIME) process as coordinated by the Provincial Treasury, is an important conformance stage to ensure compliance with the Municipal Finance Management Act (MFMA), the Municipal Systems Act (MSA), the Municipal Budget and Reporting Regulations (MBRR), MFMA Circulars and Environmental and Development Planning Legislation and Guidelines.

The findings of this conformance assessment are detailed in the documentation included in the budget report.

Mr Speaker, before I confirm the new budget and tariffs for the next financial year, allow me to refer to our current reality regarding the cost of rendering services –

I have previously shared the approach followed by the municipality over the past 4 years with the compilation of the annual budget since the COVID pandemic and the subsequent prolonged devastating impact on our communities and the economy.

Stringent measures were implemented during those budget years to ensure minimal increases in tariffs for municipal services, representing the extreme caution and care exercised by the municipality to contribute to alleviating the burden on communities in containing rates- and tariff increases.

Also, of utmost importance in compiling the annual budget, the requirement to maintain a position to ensure effective service delivery and protect the financial stability of the municipality, being crucial for the attraction of investment in our area.

Our budget for 2024/24 should thus realistically reflect these requirements, though in an increasingly challenging  environment, also taking the following into account where tariff increases could be regarded as high – 

• Operational costs for both Sewerage services and Refuse Services are severely impacted by fuel price hikes and strict regulatory compliance, where tanker services and refuse trucks are part and parcel of rendering a service.
• The consequence of loadshedding, with an impact on increased operational costs for these services, such as additional fuel costs to run generators during loadshedding at our bulk sewer works across the Overstrand are compounding factors contributing to increased costs.

We take note of the National Treasury advising that CPI must be considered when preparing municipal budgets – the following should however also be considered:

For the Draft 2024/2025 MTREF Budget.  The projected Headline inflation as communicated in December 2023, was expected to moderate to 4,9% in 2024. 

We are also aware that these forecasts are often impacted by various factors.  We recently had an upswing for two months, stated at 5,6% for February 2024, with a slight decline to 5,3% for March 2024, to 5,2% in April 2024 as the latest CPI available.

The municipality would have ideally preferred costs for rendering of services not increasing with more than inflation, however a few realities need to be considered –

• Drastic fluctuations in Fuel Prices due the oil price thus representing increased costs as part of operational costs for the municipal fleet, impacting on all services across the board.
• Substantially higher than inflation Eskom Price increases.
• Loadshedding
• Fuel as indirect costs incurred due to prolonged loadshedding instances, to run generators at multiple Bulk Water and Wastewater Works.
• Additional Overtime to unsure re-fueling of generators inclusive of remote Bulk works, regulation of peak traffic slots.
• Substantial increase in infrastructure maintenance/ refurbishment/ replacement of Equipment (Electrical & Mechanical components at Electrical / Telemetry installations due to increased switching instances, Bulk Water – & Sewer Works, etc.)
• Additional Security Expenses due to increased risk related to Council assets.
• Increased Vandalism during loadshedding
• Impact of the exchange rate on various operational and capital costs (ICT, telemetry, sensors and other items/components).
• Nationally negotiated annual Salary increase for staff is above inflation, and salary scales for municipal staff not within the municipality’s authority to change.

Considering the impact of most of the above cost drivers on the 4 basic services (Water, Elec, Refuse, Sewerage Services), as well as various Community orientated services such as Traffic, Law Enforcement, Fire Services, Cleansing, Environmental Services, Stormwater, etc across the coastal stretch of 250 km, it is clear that limitation of expenditure to CPI is not possible.

FINAL BUDGET 2024/2025

A        The budget for the 2024/2025 financial year:

1. The budgeted revenue excluding capital grants received, amounts to R1,837 billion.
2. The budgeted operational expenditure amounts to R1,944 billion – this includes non-cash items like depreciation.

Hence an accounting deficit of R106,9m is now reflected after the final revision.

It is important to note that the accounting deficit also includes non-cash items as depreciation, as mentioned.

1. The Capital budget amounts to R184,6m. It is to be used for very specific Capital projects – more about this later.

1. Revenue per functional classification, including capital grants are:

Governance and administration                                           R534,699m

Community and Public Safety                               R193,553m

Economic and Environmental services               R14,207m

Trading services                                          R1,160 billion

Trading services include electricity/energy, water management, wastewater management, and waste management.

 TOTAL   REVENUE (Including capital grants) R1,903 billion

1. Projected Operational Expenditure per functional classification, are:

Governance and administration                           R247,182m 

Community and Public Safety                               R353,370m

Economic & Environmental Services                   R219,096m

Trading services                                                          R1,120 billion

Other                                                                                               R3,923m

 TOTAL   OPEX EXPENDITURE                 R1,944 billion (with a nett deficit of R41,415m )

1. Employee and Councillor related remuneration.

In the budget a provision of R600,2m is made for employee related costs and the remuneration of Councillors. This is 30,86% of the total operating expenditure and is within the National Treasury norm of 25 – 40%.

The proposed increase in the salary budget is 5,7% and notch increases, which average 2% have also been budgeted for.

Staff vacancies are still frozen and may only be filled following a motivation to the Municipal Manager.  The revised organisational structure was considered and approved by Council during the past few months, with the implementation phase now in process.

Overtime –

The overtime budget has increased over the past few years with more in comparison with the salary budget increases due to the following –

• Additional overtime due to loadshedding

• Additional overtime due to prevention of illegal structures on informal settlements, prevention of erection of unauthorized structures on municipal open space, demolishing of illegal structures etc.

• Additional overtime due to major impact of climate change incidents occurring, which had to, and will have to be actively managed over prolonged periods, to assist communities and/or prevent severe damage or properties loss of lives, for example June 2023 storms, Sept 2023 storms, January – February 2024 wildfires.

The municipality is aware of the cost implications of before mentioned and has embarked on a process to contain costs as far as possible.

1. Before announcing the new tariffs on services for the next financial year, we need to reference the cost of rendering services.

A surplus on any trading service is crucial as it is intended and required to generate surplus cash to partly fund capital expenditure such as vehicles and ICT infrastructure.  This is to ensure adequate cash backing of reserves and funds.

It is important to note that the following figures are inclusive of overheads and excludes all capital revenue:

• With regards to electricity our total expenditure is R653,305m and our income R670,014m which allows for a surplus of R16,709m or a surplus margin of only 2.49%.
• In the case of water, our expenditure is R179,516m against an income of R189,693m giving us a surplus margin of 5.37% or R10,177m.

The next two services, namely Wastewater management (Sewerage) and Waste Management (Refuse), are currently our focus area with regard to basic services, due to the following –

Operational costs for both Sewerage services and Refuse Services are severely impacted by fuel price hikes and strict regulatory compliance, where tanker services and refuse trucks are part and parcel of rendering a service.

The consequence of loadshedding, with an impact on increased operational costs for these services, such as additional fuel costs to run generators during loadshedding at our bulk sewer works across the Overstrand are compounding factors contributing to increased costs.

• Wastewater management are thus now steered with this final budget to an improved position, still reflecting a deficit of 01%. This is against the background of actual costs for the past year resulting in a deficit. Monitoring of the performance of this service will be a high priority. The budgeted income amounts to R135,675m with the expenditure budget at R142,478m.
• Waste management carries with a total income of R123,641m against an expenditure of R126,149m leaving a deficit of 2.03% or R2,508m.

1. We now deal with the tariffs for the next financial year.

The draft MTREF draft budget for 2024/25, provides for tariffs increases for the respective municipal services ranging between 6% and 11%, the details as follows – 

Property Rates: 8% (applied as a percentage increase in the cent in the Rand based on the property valuation from 0.004210 to 0.004547 for residential properties)

Water: 6%

Sewerage: 8,9%

• Connection to recent expansion of the Sewer Network:

Currently, we have identified several households that can be seamlessly connected to our existing sewer network infrastructure. This presents a significant opportunity for us to reduce the pressure on our tanker services, as these households will no longer require regular tanker services for sewer removal.

By connecting these households to the sewer network, we can provide them with a more efficient and sustainable wastewater management solution. Furthermore, this initiative will contribute to the overall improvement of our services, as it will improve our tanker services for other areas that still rely on them.

We will thus be notifying these households of the requirement to connect and also advise the alternative approaches available to expedite the process of connecting these households to our sewer network.

Refuse Removal: 11%

Electricity tariffs, with the new Cost of Supply (Cos) tariffs, as follows,

Electricity tariffs should be considered as a newly introduced, phased, cost reflective set of tariffs, in combination with the indicative Nersa increase of 10.04%.

• IMPORTANT TO NOTE that the municipality will release a booklet / guide on the new CoS tariffs as soon as NERSA confirmed the final approval of the Overstrand Electricity Tariffs.
• The booklet will be made available on our website and promoted via social media.

An important principle of the CoS tariffs will be the option for individual consumers to migrate to, or to choose the most cost-effective capacity charge tariff, allowing consumers to manage this portion of electricity costs, as well as consumption levels, which are already managed by the consumer. 

The draft electricity tariff increase recommended for municipal consumers of the municipality, is in accordance with electricity consumer categories, now also offering a capacity charge, for the consumer to determine the level of services required, directly in relation to the price structure. The increase should be determined in combination with the capacity charge tariff applicable to the consumer, together with the unit costs (kWh) consumed.

The national annual increase for municipalities to implement, as issued by the National Energy Regulator of South Africa (NERSA), represents a 10.04% increase, but the final increase per category consumer is to be considered in view of phase one of the Cost of Supply (CoS)Tariff structure.

An important principle of the CoS tariffs will be the option for individual consumers to migrate to, or to choose the most cost-effective capacity charge tariff, allowing consumers to manage this portion of electricity costs, as well as consumption levels, which are already managed by the consumer.

The final approval of tariffs by NERSA is still awaited, where the final increase of tariffs will be in accordance with this approval.

Implementation will follow a phased approach with four phases over the next four years, starting with phase one of the revised Cost of Supply (CoS) electricity tariff structure for 2024/25.

Before-mentioned implementations also involves the phasing out over four years of the familiar sliding scale for electricity unit costs, previously prescribed for several years by NERSA.

Sundry tariffs will increase with 6%, unless circumstances indicate either a lesser increase, or cost reflective tariff, or alternatively a punitive tariff level.

Availability charges are needed to ensure that the fixed costs to have a 365-day operational service and networks in place to provide a service to every erf across the Overstrand, at any time that the service is required and at the capacity and place where it is needed.

Additional relief to vulnerable groups

The municipality is furthermore now also with this budget, improving on the provision of additional relief in line with the municipality’s focus to render support to vulnerable groups –

• Owners of residential properties with a municipal valuation below R300 000 (Three hundred thousand Rand), will no longer pay property rates.

• Registered indigents are granted the following subsidies:

(i)            100% of the basic levy for electricity for one service point per month.

(ii)           100% of the basic levy for water for one service point per month.

(iii)          100% of the basic levy for sewage for one service point per month.

(iv)         100% of 1 X vacuum tanker service after hours, per annum.

(v)          100% of the basic levy for refuse removal for one service point per month.

(vi)         The first 70 kWh in the tariff block 0-350 of electricity per month shall be free of charge.

(vii)        10 kℓ of water;

(viii)       7 kℓ of water consumption for sewerage; and

(ix)         R11.84 in regard of Infrastructure Levy.

To be noted that the increased electricity unit’s allocation from 1 July 2024, from 50 kWh, to 70 kWh per 30-day period free of charge, in the instance that they qualify for this indigent benefit.

• As on today, we are supporting 5 142 households.

The following rebates on Property Rates will also be maintained –

1. A rebate of R15 000 on the rateable value of on all residential properties is awarded.
2. An additional rebate of R35 000 on improved residential properties is awarded.
3. A further 20% rebate on the calculated property rates as calculated, if improved properties are used for residential purposes only.

1. Division of revenue allocation (DORA) grants have been published and are therefore receivable from the National and/or Provincial Governments in total R339,906m, thus a decreased allocation in comparison with the final budget allocations published for the 2023/2024 final budget a year ago (R351,604m)

The contribution is as follows:

It is important to note that these amounts consist of both operational and capital budget transfers.

MIG, INEP, Water Infrastructure grants and a portion of the Housing grant are examples of capital grants.

1. CAPITAL BUDGET.

The Overstrand Capital budget amounts to R184.6m for 2024/25. The increased own funding from surplus is due to availability of cash for capital investment for the 2024/25 capital budget.

The dedicated infrastructure upgrading and/or replacement project for water and sewerage networks had a 3-year lifespan, which came to an end on 30 June 2021. The municipality however continues with the water pipe replacement programme, albeit at a slightly lower pace, with a R8.9m allocation for 2024/25.

Our own funding (Borrowing – R93m and Internally generated funds/ Own Surplus – R26,1m) is anticipated at a total of R119,1m (64.5 per cent) and capital grants amount to R65,5 million (35,5%).

For 2024/25 borrowing has been provided at R93 million (inclusive of roll-over borrowing).

For 2024/25 an amount of R145,2m has been appropriated for the development of services infrastructure which represents 78.6 per cent of the total capital budget of R184.6m – 

• wastewater infrastructure has the second highest allocation at R45,5m in 2024/25 which equates to 31.3 per cent of the basic services infrastructure allocation,
• water management followed at 30 per cent, R43.6m,
• waste management 1.8 per cent, R2.6m and
• electricity as the highest allocation at 36.9 per cent, R53,5m.

Over the 3-year MTREF, the capital housing grant expenditure relating to housing infrastructure provision, amounts to R22,129m.

The top 10 capital projects are:

Electrification of low-cost housing areas                                                                                           R22 334 000

Low-cost housing services                                                                                                                      R13 129 000

Upgrading of pumpstations & rising mains                                                                                      R11 025 510

Kleinmond WWTW refurbish upgrade                                                                                               R10 795 320

Upgrade Hermanus well fields phase 2                                                                                             R10 100 000

Upgrade Hawston sport complex (new stadium)                                                                         R9 900 000

Replacement of Overstrand water pipes                                                                                         R8 875 470

Hermanus MV/LV upgrade replacement                                                                                         R7 692 213

Upgrade stormwater infrastructure- Proteadorp, Mountain View, Ext 6 & Overhills    R6 963 000

Replacement of water pipes Proteadorp                                                                                         R6 800 000

Lastly, an update on the Renewable Energy Scenario for Overstrand –

Renewable energy strategy for Overstrand Municipality is based on –

• Small Scale Embedded Generation (SSEG):, referring to our electricity consumers installing solar and other renewable energy generation capacity, and in some instances selling excess electricity units generated to the municipality (back into our grid). The municipality has implemented a SSEG Policy as well as an approved tariff over the past number of years already.
  
  
• Develop renewable energy sources: Investigations at this point indicate that the capacity requirement for Overstrand does not meet the minimum threshold to consider a viable project for an Independent Power Producer (IPP)
  
  
• Procuring renewable energy from Independent Power Producers: This option will be considered as soon as the industry developed a strategy to supply to an area, instead of a single municipality; and
  
  
• Making the municipality’s electrical network available to compliant and approved energy producers and energy traders to wheel energy over the municipal electrical network: This option is currently explored in the drafting of a wheeling policy, possibly to serve internal wheeling applications, but also taking into account current challenges and complexities associated with this scenario as discussed in the public domain, especially relevant to any external wheeling considerations outside the municipal network area.