DIPALESENG LOCAL MUNICIPALITY - 2011/12 Tariff application

DIPALESENG
    LOCAL
MUNICIPALITY
  2011/12 Tariff application

Index
•   1. Foreword
•   2. Overview of Dipaleseng Local Municipality
•   3. Tariff Discussions
•   3.1 Financial needs analysis
•   3.2 Social needs analysis
•   4. Questions

Foreword
Dipaleseng Local Municipality is located in the town
of Balfour, with an estimated population of 39000
citizens. Dipaleseng Municipality falls within the Gert
Sibande District Municipality.
DLM maintains its own infrastructure for supplying
electricity to consumers. DLM also provide free basic
electricity to its citizens.
• Dipaleseng Municipal Motto: Per Arde A Ad Astra
• Area: 2615km²
• Population (estimated): ± 38 617
• Location of Head Office: Balfour

Overview of DLM
•   Vision
•   To be a friendly, economically viable place providing a better life for all people, uplifting previously
    disadvantaged communities to enable them to become important role players in the development of
    Dipaleseng.
•   Mission
•   Dipaleseng Municipality will ensure a better life for all through efficient and effective service delivery; LED
    strategies to enhance job creation; developing and implementing a proper communication strategy; promoting
    prompt payment for services, and competent and skilled staff.
•   Mayor
•   Cllr MP Tsotetsi (New mayor to be confirmed)
•   Municipal Manager
•   Mr P Malebye
•   Physical Address
•   Cnr. Joubert & Stewart Streets
    Balfour
    Mpumalanga
•   Postal Address
•   Private Bag X 1005
    Balfour
    2410
•   Tel: 017 773 0055
    Fax: 017 773 0169
    E-mail: dipaleseng@worldonline.co.za
•   Website: http://www.gertsibande.co.za

Overview (Continued)
 Map 1: Spatial location of Dipaleseng Local Municipality

Overview (Continued)
   EMPLOYMENT SECTOR

   Figure 5: Employment Distribution

   SOURCE: Stats SA, 2001

     Clearly the majority of people are involved in the agricultural sector, followed by
      electricity, wholesale and retail trade, transport and construction and then
      manufacturing.
    Dipaleseng needs a strategy that will further diversify the economy, reducing
      dominance of agricultural in the employment per industry.
   High unemployment is a serious concern as it leads to socio-economic problems such
   as alcohol and drug abuse, crime, early pregnancy etc

Tariff Discussions
•   1. Financial needs analysis – Average Increase 26%
     o   When we look at the municipality’s ability to continue providing basic electricity to all consumers, one must
         look at the municipality’s bulk purchases vs billing payment per consumer history to identify possible
         shortcomings.
     o   The following table is an analysis for the last 2 financial years between bulk purchases from Eskom and the
         actual billing from the municipality. This clearly shows that, without even taken into consideration critical
         cost to provide the service; eg. Salaries, Repairs and maintenance to continue plant maintenance,
         Depreciation of plant and machinery; the municipality is operating at a loss.
     o   DLM is currently achieving a 22% consumer payment ratio. This can be explained as follows:
            • Out of the 39000 estimated people 30000 is below the national poverty line, therefore indigent in
               nature. Most of these indigents receive a free 6kw per month. In the 39000 people an estimated 14000
               households exists, of which 12000 is estimated as indigent. The actual cost of quantifying this service
               can be made as follows:
                   o 12000 (households) * (6kw * .54) * 12 = R466,560.00
            • Noted from the table below the municipality has an accumulated loss of 5% for the last 2 financial
               years. Therefore the loss must be recovered to be able to continue as a GOING concern

                   Electricity       Purchases        Billings     Profit / (Loss)   Percatange Loss

               2008/9              13 938 697.83   13 944 183.00        5 485.17                  0%

               2009/10             16 585 953.87   15 023 998.77   -1 561 955.10                 -9%

               TOTAL               30 524 651.70   28 968 181.77   -1 556 469.93                 -5%

           •     Fig1 Bulk Purchases vs Billings

Tariff Discussions
2. Financial Needs (Continue)
• To conclude; DLM has increased our tariffs higher than the allowed norm of 20.38%.
     This will ensure that past losses do not recur in the current budget year. We must
     also highlight the fact that 26% increase will not suffice, as bulk purchases only
     make 70% of your direct costs to deliver the service. DLM is therefore set to undergo
     an in-depth data cleansing exercise with measurable objectives to identify all
     active users, update the indigent data base, base on the indigent policy. This will
     also identify the possible reasons to mitigate the distribution losses of +-30% to the
     acceptable norm of 10%.
• Another point to state is that DLM has implemented for the 2011/12 year IBL
     (Inclining Block Tariffs).

3. Social needs analysis
• To continue to provide basic services, we have identified that an estimated 39000
    citizens require basic services. To provide basic electricity and to continue with
    social development in the DLM district, as per the IDP of DLM, all consumers should
    at least receive 6kw per month free. However, with the current status quo of the
    municipality, the goal seems unreachable as significant losses are being incurred,
    and the Equitable share can only suffice so much. In short should price hikes of
    electricity continue, the DLM will not be able to continue as a Going Concern.

Tariff Discussions
• The final questions is why? Why does DLM need
  assistance from the NER to achieve service delivery
  as well as to continue as a going concern. Should
  DLM only apply the 20.38% increase, more
  significant losses will be incurred. DLM also
  implemented an Inclining Block Tariff due also
  reduce unnecessary usage.

Questions
• Any questions?