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Friday Dec 12, 2014

Joburg's R17.5 billion rand debt problem

The City of Joburg is owed more than any other municipality in outstanding debt, at R17.5 billion.

This is part of the R54.7bn in outstanding debt owed to the eight metros as at September 30, the National Treasury stated in municipal documents released yesterday.

This total is an increase of R4.9bn, or 4 percent, over the same time a year ago.

Ekurhuleni is owed R10.6bn, Cape Town R6.6bn, Tshwane R6.5bn and eThekwini R5.4bn.

Households owe more than half of the metro debt.

The Treasury has now published on its website the operating and capital budgets of 278 municipalities as adopted by their councils.

Together, the municipalities have budgeted for revenue for 2014/15 of R310bn and expenditure of R336.3bn.

The Treasury said a deficit of R645.5 million was expected for the municipalities together in 2014/15, but this should improve over the next two years to a surplus of R1.6bn by 2016/17.

"Purely from an operational point of view, municipalities are starting to show positive trends in that they plan for enough revenue to be generated to cover their operational expenses," said the Treasury.

The budgets include a total of R73.6bn in 2014/15 for employee costs, R3.3bn for councillors' remuneration and R84.2bn for materials and bulk purchases (this includes buying electricity and water).

Revenue for 2014/15 includes R141.7bn in services charges, which includes electricity and water, and R44.9bn in property rates. This revenue budgeting represents the intended billing and not actual collections. "The degree to which billing and other revenue translate into actual cash is highly dependent on the management of the municipal revenue value chain and credit control processes," said the Treasury.

In total, the metros expect to spend R41.5bn in 2014/15 buying bulk electricity and R8.4bn buying bulk water.

This excludes the cost of running those services.

They expect to bill consumers R62.7bn for electricity and R17.6bn for water.

The City of Joburg expects in 2014/15 to spend R9.1bn buying electricity and R2bn buying water, and expects to bill R13.6bn for electricity services and R4.6bn for water services.

The Treasury said although it seemed that the municipalities made a substantial profit from electricity, the bulk purchase of electricity was on average only 67 percent of the cost of providing electricity to municipal customers.

"The net profit on the sale of electricity is an important revenue source for metros.

"This profit margin has been under significant pressure due to the rapid increase in the bulk price of electricity resulting in affordability challenges," said the Treasury.

"Municipalities are experiencing a two-fold impact of the high bulk electricity increases: lower sale levels owing to changes in consumption patterns and increased bad debt as a result of affordability pressures."

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