1. 2012/13 Municipal Budget and Benchmark Engagement SALGA National Working Group Presented by National Treasury: Chief Directorate Local Government Budget Analysis - 1 st June 2012

2. Background To improve budgeting in LG by measuring performance among municipalities; identifying common trends and areas of risk; Trend analysis within the specific sector and municipal category/capacity; Early warning system – Lessons that may be shared; Outcomes directly informed by the MBRR (Budget process) data provided by municipalities; Credibility, integrity and relevance of MBRR data remains a concern for all municipalities; not merely a compliance exercise! Credibility of data is critical in strengthening whole of local government performance; and To systematically improve the budget information of all local authorities thereby ensuring sustainability within the municipal environment over the medium to long-term. 2

3. Outcome of the previous Benchmark Engagement: Summary of tabled 2011/12 MTREF - 8 Secondary Cities and 1 District 3 Compliance and Sustainability Measures RustenburguMhlathuzePolokwaneMbombelaSol PlaatjieGeorgeMsunduziO.R. TamboMafikeng Tabled or Adopted BudgetTabledAdoptedTabledAdopted Tabled Compliance to Overall Budget Process: In accordance with the MFMA time scheduleNoYes No Political Oversight UndertakenYes Partially YesNo Mid-year Review UndertakenNoYes NoYesNoYes Alignment of Budget with National, Provincial and IDP PrioritiesNoYes No Partially Provided Adequate Budget AssumptionsYes NoYesNoYesNo Adequate Public Participation ProcessNoYes PartiallyYesNo Partially Backlogs Adequately Addressed as informed by available funding / funding constraintsNoFair No Ability to Borrow as part of the MTREFYesLimited Yes No Status of the Cash flow / LiquidityGoodPoorFairPoor GoodPoor Is the Budget FundedNo PartiallyNo YesNo Is the Budget Multi-yearPartially No Is the Budget Credible & SustainableNo YesNo

4. Outcome of the previous Benchmark Engagement: Summary of tabled 2011/12 MTREF – 8 Metro’s 4 Compliance and Sustainability Measure City of Johannesbur g Cape TowneThekwiniEkurhuleniTshwaneNelson Mandela Bay Buffalo CityMangaung Tabled or Adopted BudgetTabled Adopted Tabled Compliance to Overall Budget Process: In accordance with the MFMA time schedule Yes Yes Yes Yes Yes Yes No Political Oversight UndertakenYes Mid-year Review UndertakenYes Alignment of Budget with National, Provincial and IDP PrioritiesYes FairYes Fair Provided Adequate Budget AssumptionsYes PartiallyFairNo Adequate Public Participation ProcessYes Fair Backlogs Adequately Addressed as informed by available funding / funding constraintsYes PartiallyYesPartiallyNoFair Ability to Borrow as part of the MTREFNoYesLimitedYes NoYes Status of the Cash flow / LiquidityPoorGoodFair PoorFairPoor Is the Budget FundedNoYes NoYesNo Is the Budget Multi-yearPartially Poor Is the Budget Credible & SustainableNoYes NoYesNo

5. Common observations from the Tabled 2011/12 MTREF Budget and Benchmark Engagement Generally municipalities demonstrated the presence of a spatial development framework and that a formal spatial development unit/section exists within the municipality however there was very little evidence to demonstrate that the SDF indeed informs the IDP or MTREF; Nine secondary cities applied an incremental budgeting approach instead of the required multi-year budget approach particularly in respect of the operating budget appropriations of the MTREF’s two outer years; None of the seventeen non-delegated municipalities fully complied with the MBRR; Mayors and Councillors are not adequately informing communities of the IDP, MTREF and SDBIP and relevant municipal policies hence there is limited community buy-in for the MTREF; Poorly constructed indigent policies, ineffective implementation and poor data integrity result in the municipalities providing free basic services to households that are not entitled to such benefits; Ineffective debt collection processes, incorrect billing and inaccurate data impedes the municipalities’ ability to bill and collect revenue; consequently there is greater reliance on grants as well as borrowing; The continued increases of above 20 per cent in the Eskom bulk tariff is negatively impacting on the operating statement of all municipalities. Affordability challenges in relation to electricity, the negative impact on defaulters and the subsequent increases in debt impairment provisions, all of which are counterproductive, is of concern; 5

6. Common observations stemming from the Tabled 2011/12 MTREF Budget and Benchmark Engagement – Continued With the exception of six metros, municipalities are weak at tariff setting and ensuring cost recovery particularly in respect of trading services. In many instances the services are trading at loss and this will have to be addressed as a matter of urgency; Cash flow forecasting, funding compliance and funding measurement remains exceptionally weak and is an area that requires attention. The exceptions are Cape Town, eThekwini, Tshwane, Buffalo City, uMhlathuze and Mbombela; Depreciation, asset impairment and debt impairment do not receive adequate provision within the statement of operating performance and in many instances is utilised to balance the operating statement; There is evidently a lack of understanding of the funding requirements of the municipal budget. The exercise of ‘balancing’ the budget is in many cases, incorrectly, considered by the municipality as an adequate measure of sustainability; Inadequate allocations to operational repairs and maintenance and capital asset renewal; Underperformance, particularly in respect of capital programmes, has been attributed to challenges associated with the implementation of the Supply Chain Management Regulations. However, the obvious lack of credible multi-year planning is a significant contributing factor; Municipalities are increasingly receiving audit qualifications because of unauthorised and irregular expenditure as a result of tenders being allocated to persons in the employ of the municipality and the state; and Several municipalities presented low levels of ‘cash coverage’ (less than a month). 6

7. 2012/13 Tabled MTREF – Nelson Mandela Bay Metro Benchmarking (1)

8. 2012/13 Tabled MTREF – Nelson Mandela Bay Metro Benchmarking (2)

9. 2012/13 Tabled MTREF – Nelson Mandela Bay Metro Benchmarking (3)

10. 2012/13 Tabled MTREF – Nelson Mandela Bay Metro Benchmarking (4) ?

11. 2012/13 Tabled MTREF – Nelson Mandela Bay Metro Benchmarking (5) AS PER MUNICIPAL MBRR NT CALCULATION AS PER MUNICIPAL MBRR NT CALCULATION ????????

12. Analysis of Electricity Gross and Net Margins NMBM Metropolitan Municipality 12

13. Analysis of Water Gross and Net Margins NMBM Metropolitan Municipality 13

14. Net Operating Margin Metro Comparison - Electricity 14

15. Net Operating Margin Metro Comparison – Water 15

16. Analysis of the Electricity Trading Service 16

17. Analysis of the Water Trading Service 17

18. Analysis of the Waste Water Trading Service - NMBM 18

19. Analysis of the Waste Management Trading Service - NMBM 19

20. Analysis of the All Trading Services - NMBM 20

21. THANK YOU