ALFRED NZO DISTRICT MUNICIPALITY Version 1 SCHEDULE A ANNUAL BUDGET AND SUPPORTING DOCUMENTATION OF ALFRED NZO DISTRICT MUNICIPALITY MAR 2015 1 ANNUAL BUDGET OF ALFRED NZO DISTRICT MUNICIPALITY 2015/16 TO 2017/18 MEDIUM TERM REVENUE AND EXPENDITURE FORECASTS Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF 1 Table of Contents PART 1 – ANNUAL BUDGET ...................................................................................................................... 2 2 MAYOR’S REPORT ................................................................................................................................... 2 2.1 BUDGET RESOLUTIONS.............................................................................................................................. 11 2.2 EXECUTIVE SUMMARY ............................................................................................................................... 12 2.3 OPERATING REVENUE FRAMEWORK ......................................................................................................... 15 2.3.1 Sale of Water and Impact of Tariff Increases ............................................................................. 19 2.3.2 Sanitation and Impact of Tariff Increases.................................................................................... 19 2.4 OPERATING EXPENDITURE FRAMEWORK .................................................................................................. 19 2.5 CAPITAL EXPENDITURE .............................................................................................................................. 23 2.6 MUNICIPAL MANAGER’S QUALITY CERTIFICATE ......................................................................................... 24 May 2015 i Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF Abbreviations and Acronyms AMR Automated Meter Reading ℓ litre ASGISA Accelerated and Shared Growth LED Local Economic Development Initiative MEC Member of the Executive Committee BPC Budget Planning Committee MFMA Municipal Financial Management Act CBD Central Business District Programme CFO Chief Financial Officer MIG Municipal Infrastructure Grant CM City Manager MMC Member of Mayoral Committee CPI Consumer Price Index MPRA Municipal Properties Rates Act CRRF Capital Replacement Reserve Fund MSA Municipal Systems Act DBSA Development Bank of South Africa MTEF Medium-term Expenditure DoRA Division of Revenue Act Framework DWA Department of Water Affairs MTREF Medium-term Revenue and EE Employment Equity Expenditure Framework EEDSM Energy Efficiency Demand Side NERSA National Electricity Regulator South Management Africa EM Executive Mayor NGO Non-Governmental organisations FBS Free basic services NKPIs National Key Performance Indicators GAMAP Generally Accepted Municipal OHS Occupational Health and Safety Accounting Practice OP Operational Plan GDP Gross domestic product PBO Public Benefit Organisations GDS Gauteng Growth and Development PHC Provincial Health Care Strategy PMS Performance Management System GFS Government Financial Statistics PPE Property Plant and Equipment GRAP General Recognised Accounting PPP Public Private Partnership Practice PTIS Public Transport Infrastructure HR Human Resources System HSRC Human Science Research Council RG Restructuring Grant IDP Integrated Development Strategy RSC Regional Services Council IT Information Technology SALGA South African Local Government kℓ kilolitre Association km kilometre SAPS South African Police Service KPA Key Performance Area SDBIP Service Delivery Budget KPI Key Performance Indicator Implementation Plan kWh kilowatt SMME Small Micro and Medium Enterprises Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF Part 1 – Annual Budget 2 Mayor’s Report EXECUTIVE MAYOR, CLLR. E.N. DIKO’S POLICY SPEECH DURING TABLING OF THE DRAFT 2015/16 IDP/BUDGET OF THE ALFRED NZO DISTRICT MUNICIPALITY TO THE SITTING OF ORDINARY COUNCIL MEETING AT ALFRED NZO COUNCIL CHAMBERS ON THE 31s MARCH 2015 Honourable Speaker of the Council Chief Whip of the Council Deputy Executive Mayor Members of the Mayoral Committee Councillors Iinkosi zomthonyama Acting Municipal Manager Senior Managers Board Members and Acting CEO of ANDA Officials Distinguished guests in the gallery Members of the media present Friends and Comrades Mr Speaker and the Council, President Jacob Zuma has officially announced 2015, as the Year of the Freedom Charter and Unity in Action to Advance Economic Freedom and a year of going the extra mile in building a united, democratic, non-racial, non-sexist and prosperous South Africa. Significant strides have been made to respond to the issues stated in the Freedom Charter but more is still to be done to realise the content of the people’s document that was crafted in Kliptown, Soweto in 1955. MAR 2015 2 Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF The Freedom Charter is where South African from all walks of life declared amongst other things, that South Africa belongs to all who live in it, black and white, and that no government can justly claim authority unless it is based on the will of all the people. In our quest to realise the objectives of the Freedom Charter, Honourable Speaker and Councillors, sihlangana apha emva kwe Ntetho yoBume beSizwe (State of the Nation Address) SONA, which was delivered by President Jacob Zuma on the 12 February 2015, as well as the address by Premier Phumulo Masualle in his State of the Province Address (SOPA) on the 20th February 2015. Honourable Councillors and Traditional Leaders, President Zuma and Premier Masualle outlined a clear programme of action, which will be instrumental in driving the developmental agenda of our country and the province in our quest to move South Africa forward. The year 2015 is one of the milestone years in South Africa’s history, as on the 27 April 2015, we will be reaching 21 years of people’s government since the dawn of democratic dispensation in1994. Let me take this opportunity as we close the month of March which is also known as the Human Rights month and also tomorrow we are stepping into the freedom month which is April and I invite members of this Council to participate in a series of activities that are scheduled to celebrate the Freedom month. The month of April should be a time for us as the people to reflect on the progress that has been made since 1994 and as we forge ahead in our resolve to address many social ills, many of our people are still trapped in poverty, with income disparities still remaining high, unemployment is still high and many more people still lack basic necessities. Honourable members of this august house, we have made significant progress in the district towards provision of water and sanitation, but more is still to be done, as many of our communities are still in need of these essential life changing services. The host of these above mentioned urgent socio-economic issues in our district and the broader society requires that in certain respects, the composition of our expenditure and strategies need to be urgently and drastically restructured to effect greater changes in our developmental agenda and bring changes to the living conditions of our people. As part of the Freedom Month activities, the Imbizo Focus Week will also be in full swing on the 07-12 April and this platform will further accelerate direct interaction between communities and government and in the process provides an opportunity for immediate solutions to be found in many of challenges that are faced by our people. MAR 2015 3 Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF We will be officially handing over a multi-million rand project to the community of Ward 12 in Umzimvubu Local Municipality and we will be joined by the Deputy Minister of Communication, Stella Ndabeni-Abrahams at Siqhingeni village and also conducting door to door campaign in other communities. In Mbizana on the 10th of April the Minister of Social Development, Bathabile Dlamini will be visiting various communities. Fellow councillors and communities, Freedom month is an opportunity to celebrate our democratic values, system of governance and also acknowledge significant progress that as the government of the ANC and our people we have done over two decades in government. Honourable members of the Council and fellow community members as government steps into the third decade of people’s government will continue to push ahead with the implementation of the National Development Plan (NDP), which is the country’s roadmap to promote inclusive economic growth, job creation and social transformation. As this Council, we are expected to continue to implement policies and programmes that will further improve the quality of life of our people, more especially the poor and in the period we will see the acceleration of delivering Water, Sanitation and driving Local Economic Development. Honourable members, this is the time for all of us to unite regardless of political affiliations, race or religious beliefs and work together to move our district and the country forward. Honourable Chief Whip and the Whippery, the draft municipal programme of action that we are presenting today to this Council has taken into consideration a number of issues raised by communities. The 2015/16 programme of action has been produced after a series of engagement with communities and stakeholders reflecting on the performance in terms of service delivery and challenges that are encountered by many of our communities and this will in turn assist the current and the new upcoming Council in formulating concrete strategies in ensuring improved approaches to address socio-economic ills in our quest to move the Alfred Nzo district forward. Members of the Council, let’s be mindful of the fact that we need to go to all our communities as part of our public interactions with various sectors of our society to solicit partnership towards the adoption and implementation of this programme of action. Honourable Councillors, we need to work together to speed up the implementation of this programme of action to address backlogs on water, sanitation and also improve our MAR 2015 4 Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF economic development initiatives to fight widespread poverty, income disparities and unemployment which remains high in the district. We have tasked the Local Economic Development Unit and the Alfred Nzo Development Agency to move with speed in the implementation of life changing programmes to address triple social ills of inequalities, poverty and unemployment in the district. Honourable Chief Whip and the Whippery, undoing the damage of the evil apartheid system in a short space of time was never going to be easy, however government continues to deliver faster and smarter. Mr Speaker, it is with great pleasure for me to address this important sitting of the Council to table the Draft Integrated Development Plan (IDP) and Budget for the 2015/16 financial year of the adopted ANDM IDP 5 Year Strategic document 2012-17, to respond to our people’s needs and the development of our district and these documents are tabled to this Council for noting as we will be going on the last round of IDP/Budget outreaches soon. Honourable Councillors, as the executive we are pleased with audit outcome and the progress that has been made so far and we are appreciating the support that we have received from the Council and its structures, without this support we would have not achieved these outcomes. More is still to be done to achieve better outcomes and as we intensify this process, let me also call upon all relevant structures of the Council to play their oversight role in this regard and indeed working together we can achieve better audit outcomes. Honourable Councillors, significant progress has been made with respect to the implementation of district priorities that are primarily focused on the powers and functions of the municipality. Alfred Nzo District Municipality is both a Water Service Authority and Water Services Provider; hence the key priority is to provide these essential services to every household. Honourable Members, let me indicate that MEC for Finance in the Eastern Cape, Honourable Sakhumzi Somyo in his budget speech said given the narrowing fiscal envelope and the continued increasing demand for service delivery, it is imperative that fiscal sustainability is achieved. He further said the province will ensure that funds are allocated efficiently to where they are most needed by pursuing reprioritization, program reviews, and budget reviews. MAR 2015 5 Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF All government institutions are expected to review programmes through four lenses – relevance, effectiveness, efficiency and sustainability. The objective of this undertaking is to ensure that sustained funding goes to initiatives that work and have maximum impact for development and our people. With regards to the implementation of austerity measures the MEC indicated that drastic measures need to be rolled out in the Province such as the curbing of excessive expenditure on Travel and Subsistence, Consultants, Venues, Catering, Government Fleet, Cellphones and these pronouncements are in line with the resolutions of the Council Strategic Planning session recently held in Wild Coast Sun. The MEC further reiterated that given the constrained fiscas it has become incumbent on every one in government to find innovative ways of increasing their own revenue. The increasing of own revenue creates an opportunity for new revenue streams that can be put towards improving public infrastructure and growing the economy. As the executive we are currently rolling a massive revenue enhancement strategy that will see many of our communities paying for the services we provide to them. In the 2015/16 financial year our plans and strategies are in place, and now our efforts and resources are focussed on accelerating implementation and service provision. The total operating revenue (R1.213 billion) has decreased by R35.9 million for the 2015/16 financial year when compared to the 2014/15 Adjustments Budget (R1.249 billion). The budget also indicates that the district municipality is highly dependent on grants R641 million, and R365 million for equitable share. Meanwhile our own revenue only contributes R73 million to total revenue which has grown significantly compared to previous years which is estimated to grow even further as we implement the Revenue Enhancement Strategy as adopted by the Council. Meanwhile, over the years, the district municipality has been able to maintain a sufficient reserve base and the current year budget has appropriated R55,2 million to assist in financing both operational and capital expenditure. Mr. Speaker and Councillors, it must however be made clear that such cash reserves will overtime be finished and to be cautious, we need to continue leaving within our means and do away with nice to have’s, as outlined in the Budget Policy Speech as presented by the Minister of Finance in Parliament in February 2015 and also take into cognisance the Back To Basics Principles. Honourable Councillors, South Africa faces similar challenges with regard to water supply, as it did with electricity, since demand growth outstrips supply. Consequently, National Treasury is encouraging all municipalities to carefully review the level and structure of their water tariffs to ensure the following: MAR 2015 6 Alfred Nzo District Municipality 2015/16 Annual Budget and MTREF  Water tariffs are fully cost-reflective – including the cost of maintenance and renewal of purification plants, water networks and the cost associated with reticulation expansion  Water tariffs are structured to protect basic levels of service and ensure the provision of free water to the poorest of the poor (indigent); and  Water tariffs are designed to encourage efficient and sustainable consumption. In addition, National Treasury has urged all municipalities to ensure that water tariff structures are cost reflective by 2016. Honourable Councillors, a tariff increase of 6 per cent from 01 July 2015 for water is recommended and this is based mainly on the Consumer Price Index (CPI) inflation rate as projected by the National Treasury. Furthermore, a tariff increase of 6 per cent for sanitation from 01 July 2015 is also recommended and this is based on the input cost assumptions related to water. The proposed tariff increases remain the same as those proposed in the current year. In addition once credible systems are put in place, it is expected that 6 kℓ water per 30- day period will again be granted free of charge to all qualifying residents. The district municipality is currently performing a tariff modelling exercise that is likely to realistically provide details, as to whether our current tariffs are cost-reflective as required by the national treasury. Mr. Speaker there has been an increase in our budget as we have received R6 million for Energy Efficiency and Demand Side Management Grant, which is aimed to provide subsidies to municipalities to implement Energy Efficiency and Demand Side Management initiatives within municipal infrastructure, in order to reduce electricity consumption and improve energy efficiency. Meanwhile, the budgeted allocation for employee related costs for the 2015/16 financial year totals R189 million, which equals 37.8% of the total operating expenditure. This percentage should immediately ring cause concern to this Council as an acceptable major of personnel costs to operating costs ranges between 25-40%. More pleasing, Honorable Councillors, water and sanitation projects have received the highest allocation of R693 million in 2015/16. Included in the budget provision is an amount of R15 million (2015/16), respectively in lieu of the Alfred Nzo Development Agency (ANDA). It must however be emphasized that continued reliance by the entity on the district municipality’s budget to finance their operations is not sustainable. These entities should position themselves in such a way that they undertake projects/programs that will ensure self-sustainability in the long-run. Majority of our people in the district are unemployed, indigent and mostly dependent on state social intervention, this has a negative bearing on our revenue collection and this also prevents them from playing a meaningful role in driving the economy of the district. MAR 2015 7