Tariff shock looms

Date: 09 May 2016 By: Isabel Venter

Has Makhado Municipality plunged the region into a crisis?

It would seem that the municipality’s financial problems are worse than the collective pockets of residents can afford. When looking at their 2016/17 draft budget, their solution is to impose additional tariff increases on basic services, and specifically on electricity. The rate on the supply of basic electricity charges is set to increase by 7.86% this year, and by the same amount over the next two financial years.

Louis Trichardt’s electricity supply recently came under scrutiny yet again. On more than one occasion, the Zoutpansberger reported that Louis Trichardt is facing an imminent electricity crisis. Last week, the newspaper reported on the town’s electrical network that is closer than ever to the verge of total collapse.

The municipality is currently not approving any new developments of which the electricity demand exceeds 50kVA. The main reason for this is that the town’s main substation, the Rabola substation, will soon reach its maximum capacity. This affects not only development projects in town, but also other major agricultural developments and progress as far afield as Levubu, Thohoyandou and Bandelierkop.

During an interview, Makhado municipal manager Mr Sakkie Mutshinyali admitted that the “municipality had exhausted many avenues in the past to raise the money needed for the upgrade of the substation.”

The municipality’s dire financial situation with regard to the much-needed and urgent upgrade of the Rabola substation is also reflected in the annual draft budget for 2016/17. Little to no provision has been made for major upgrades. Instead, the municipality is seemingly trying to keep the whole network together with a series of stopgap measures. The budget states outright: “Many of the capital projects required by the managers were reduced due to a lack of funds and the increasing maintenance costs and fund availability in the light of the municipality’s financial constraints.”

Since the municipality is in need of more funds and plans on getting them by increasing rates on services (such as electricity), the newspaper decided to have a closer look at the draft budget.

According to the municipality, their principal income is generated from service charges as they relate to electricity and refuse removal. In total, these services constitute approximately 39.7% of the municipality’s revenue basket. In this year’s annual draft budget, the municipality states that it generated a total of R752 million for the 2015/6 financial year (electricity and refuse services) and estimates that this amount will increase to R847 million for 2017/18. 

The question, however, is why then are there still not enough funds to upgrade the Rabola sub-station at an estimated cost of R100 million? The short answer appears to be that, after everything else has been paid for, not enough money is left.  Apart from a budget amount of R270 815 000 for 2015/15 and R304 647 000 for 2016/17 on electricity expenditure, the municipality only budgeted a maximum of R71 210 000 for capital expenditure on electrical infrastructure for 2016/17, including an additional R7 735 000 on 50kwh free electricity for qualifying indigent households. Electricity distribution losses are also set to yet again take a big chunk out of the municipality’s projected income when one looks at previous years. In the budget for 2015/16, the municipality estimated that it had reduced distribution losses from 17% in 2012/13 to 15.7% in the 2013/14 financial year. During the 2015/16 and 2017/18 financial years, the municipality envisages to further reduce these losses by introducing meter auditing through the initiative of the Development Bank of South Africa to ensure 100% billing on all municipal meters. The draft budget indicates that the municipal revenue and cash flow are under severe pressure, and will continue to be so during the coming financial year. The reason given for this is that bad debts amount to an estimated R146 757 000. “We project to start the year with negative balance cash/cash equivalents and project an average collection rate for the coming financial year of 80–85%,” states the draft budget.

In the meantime, it is rumoured that the municipality still owes Eskom hundreds of millions for bulk electricity purchases. In 2014, the amount was estimated at R60 million, plus an additional R817 000 in penalty interest. Neither Eskom nor the municipality wanted to divulge the current state of the municipality’s Eskom account when approached last week. The newspaper was, however, able to determine that the payback agreement the municipality signed with Eskom in 2014 is still in place.

During April last year, the Makhado Municipality found itself on a list of 60 municipalities that persistently failed to pay Eskom. As a result, the National Treasury announced that it would withhold equitable share contributions (the funds that every municipality gets unconditionally from revenue collected nationally). The treasury released the municipality’s funds only after it had entered into a repayment agreement with the electricity supplier.

The municipality was approached last week for more recent figures on their “various key challenges on service delivery and development.” At the time of our going to press, an answer was still forthcoming.  

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Isabel Venter

Isabel joined the Zoutpansberger and Limpopo Mirror in 2009 as a reporter. She holds a BA Degree in Communication Sciences from the University of South Africa. Her beat is mainly crime and court reporting.

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