FINANCIAL SUSTAINABILITY & RESILIENCE OVER THE NEXT 4

DECADES

Presented by:

Mr Andile Dyakala

Chief Financial Officer

Table of Contents

• Government Vision and Strategic Objectives• Tshwane 2055• 2012/13 MTREF• Revenue Security and Financial Sustainability• Financial Sustainability Game changers• Financial Ratios Towards 2055• Funding of Capital Infrastructure Plans• Conclusion

Government Vision and Strategic Objectives

Key events and policy instruments have shaped and continue to influence local government long-term planning processes such as :

Vision 2055 adopted by Gauteng Province for development of the province;

South African Vision 2025, as published in the Green Paper of National Strategic Planning 2009;

The Medium Term Strategic Framework (MTSF) (2009 – 2014) outlining ten strategic priorities of National Government as introduced in 2009 . The MTSF has a new growth path outlining the approach to accelerate growth and employment, focusing on inter alia:• Continuing and broadening public investment in infrastructure;• Targeting more labour-absorbing activities.• Promoting innovation through “greening economy” initiatives; and• Supporting rural development and regional integration

Government Vision and Strategic Objectives(contd)

In 2010 the Government adopted 12 outcomes as the basis for the country’s programme of action and to facilitate measureable performance and better service delivery .

In terms of the local government outcome – “A responsive, accountable, effective and efficient local government system” - seven outputs have been formulated inter alia: Implement a differentiated approach to municipal financing, planning and support.

Tshwane 2055 is linked to the above Government Vision and Strategic Objectives.

Tshwane 2055

The City of Tshwane views its long-term strategy formulation process as a “game changing” intervention that will shape the City’s future growth and development goals. To this end, the Tshwane 2055 Discussion Document presents the City with an opportunity to align its transformation agenda to current realities while building a foundation for the future.

Advantages of long-term planning:

• It encourages stakeholders to invest resources toward the development of a common vision that in turn informs the prioritisation of areas and interventions

• It fosters the allocation of resources to prioritised areas over a period.• It helps a city anticipate future shocks and rapidly changing contexts (the

risk environment) and raises its understanding of how stakeholders would respond under various scenarios

• It enables a city to anticipate the rate, type, and physical direction of growth and to develop infrastructure ahead of growth.

Tshwane 2055 (contd)

Preliminary game changing conceptual framework (game changing principles)

Tshwane South Africa’s Capital 2055

Diversified and shared economic

developmentRevenue

security and financial

sustainability

Participation, collaboration

and partnerships

Safe and healthy City

for all

Spatial engineering and mobility

Integrated economic, social and

environmental strategies

Social cohesion and

inclusion

Service delivery

excellence and

innovation

2012/13 MTREF

Summary of Revenue and Expenditure for the 2012/13 MTREF

Budget Year2012/13

Budget Year 2013/14

Budget Year 2014/15

R’000 R’000 R’000Total Operating Revenue 22 718 866 24 956 760 27 818 718

Total Operating Expenditure 21 084 256 22 690 799 24 666 324

Surplus/(Deficit) for the year 1 634 610 2 265 961 3 152 394

2012/13 MTREF

Capital budget per departmentDepartments

Budget

2012/13%

Budget

2013/14%

Budget

2014/15%

City Planning and Dev elopment 5 200 000 0,12% 5 700 000 0,13% 5 700 000 0,11%

Corporate and Shared Serv ices 39 300 000 0,90% 34 500 000 0,77% 26 500 000 0,53%

Economic Dev elopment 15 151 000 0,35% 4 000 000 0,09% 4 100 000 0,08%

Emergency Serv ices 37 200 000 0,85% 44 300 000 0,98% 46 800 000 0,94%

Env ironmental Management 113 760 000 2,61% 93 800 000 2,08% 99 500 000 2,01%

Financial Serv ices 30 000 000 0,69% 19 500 000 0,43% 19 500 000 0,39%

Housing and Human Settlement 563 230 639 12,94% 594 274 271 13,20% 1 613 939 000 32,54%

Information and Communication Technology 81 655 000 1,88% 84 500 000 1,88% 84 500 000 1,70%

Metro Police Serv ices 36 500 000 0,84% 43 500 000 0,97% 53 500 000 1,08%

Office of the Speaker 1 500 000 0,03% 1 500 000 0,03% 1 500 000 0,03%Office of the City Manager 62 567 000 1,44% 63 000 000 1,40% 55 967 000 1,13%

Regional Serv ice Deliv ery 340 964 000 7,83% 318 200 000 7,07% 160 000 000 3,23%

Serv ice Infrastructure 1 610 811 410 37,00% 1 778 981 369 39,51% 1 374 650 000 27,71%

Transport 1 388 407 850 31,90% 1 392 011 806 30,92% 1 384 321 000 27,91%

Other Votes 26 800 000 0,62% 24 500 000 0,54% 30 000 000 0,60%

City Strategies & Performance Management 1 500 000 1 500 000 1 500 000

Communications, Marketing and Ev ents 1 500 000 1 500 000 1 500 000

Health and Social Dev elopment 2 000 000 2 000 000 7 500 000

Sports and Recreation 15 800 000 13 500 000 13 500 000

Audit and Risk 1 000 000 1 000 000 1 000 000

Legal Serv ices 1 000 000 1 000 000 1 000 000

Office of the Chief Whip 1 000 000 1 000 000 1 000 000

Office of the Ex ecutiv e May or 1 500 000 1 500 000 1 500 000

Research and Innov ation 1 500 000 1 500 000 1 500 000

TOTAL CAPITAL BUDGET 4 353 046 899 100% 4 502 267 446 100% 4 960 477 000 100%

2012/13 MTREF

Summary of tariff increases per main service (1 July 2012):

Revenue category

2012/13 Tariff

increase

2013/14 Tariff

increase

2014/15 Tariff

increase

% % %Property rates 12,0 10,0 10,0Sanitation 12,0 10,0 10,0Solid Waste 25,0 25,0 25,0Water 10,0  10,0 10,0Electricity 12,0 12,0 13,0

Revenue Security and Financial Sustainability

Long-term Financial

Sustainability Plan

Capital Investment Framework

Long-term Growth,

Employment &

Development Plan

Asset Management

Strategy

Housing Development

Plan

Revenue Enhancement

StrategyInfrastructure

Plan and Infrastructure Maintenance

Plan

Integrated Development

Plan (IDP)

City Development

Strategy (CDS)Infrastructure

Investment Strategy (Loans &

Investments)

Revenue Security and Financial Sustainability (contd)

Pyramid of Sustainability

2055

The CoT wants to move from the bottom to the top by 2055.

Revenue Security and Financial Sustainability (contd)

Pyramid of Sustainability (contd)

Critical Short Term Sustainability Long Term Business Viability

Maintain unqualified audit opinion Clean audit reportImprove working capital Realistic and accurate cash flow planning

High long term credit rating with a stable outlook

Gilt edged (highest) credit rating which is also maintainable

Adherence to the MFMA and NT Regulations Maintain adherence to the MFMA and NT Regulations

90% spending on capital budget 95% to100% spending on capital budgetBuild cash-backed reserves. Full cash-backed reserves.Create operating surplus to fund capital programme

Adequate operating surplus to fund the capital programme, while maintaining a debt to revenue ratio of 40%

Infrastructure backlogs addressed inadequately.

Infrastructure backlogs addressed significantly.

Repairs and maintenance addressed in terms of accepted levels only.

Repairs and maintenance addressed sufficiently.

Asset management in process. Sound asset management.Debt levels above prudential guidelines. Maintain debt levels below prudential guidelines.Develop revenue enhancement initiatives. Adequate additional revenue sources.

Revenue Security and Financial Sustainability (contd)

Fundamental InformantsTo ensure long term financial health and sustainability and to enable continuous service delivery over the medium to long term the following fundamental informants are applicable: • Game changers – To frame and guide the city’s approach to growth and

development• Financial ratios – Best practice norms• Value for money• Operational efficiencies• Revenue Enhancement – Identification of new revenue streams and maximizing

current streams (parking bay tax, business tax). • Cash flow management intervention initiatives and strategies.• Additional funding sources – Business tax, parking bay tax etc.• Review tariffs – Must take cost of providing service into consideration ie CPI,

MCI, but also affordability levels.• Collection rate – Credit policy, incentive schemes.• Level of expenditure

– Capital & operating– Accountability to community

Revenue Security and Financial Sustainability (contd) Fundamental Informants (contd)

• Cash Backing of surplus and reserves.• Infrastructure Funding Plan to assist with best practice mix.

• Surplus funds from own generated revenue• Other funding instruments

• Borrowing (i.e. Loans, Bonds and PPP’s) – The NT ratio of Borrowing against Own Capital Funding to be decreased, as the CoT should be less dependant on borrowing and more dependant on surplus funds generated (50/50 ratio).

• Long-term debt to total revenue not exceeding 40%.• External funds (ie grants as published in the DoRA) – (mainly increasing by

CPI).

2012/13 MTREF

Capital budget per departmentDepartments

Budget

2012/13%

Budget

2013/14%

Budget

2014/15%

City Planning and Dev elopment 5 200 000 0,12% 5 700 000 0,13% 5 700 000 0,11%

Corporate and Shared Serv ices 39 300 000 0,90% 34 500 000 0,77% 26 500 000 0,53%

Economic Dev elopment 15 151 000 0,35% 4 000 000 0,09% 4 100 000 0,08%

Emergency Serv ices 37 200 000 0,85% 44 300 000 0,98% 46 800 000 0,94%

Env ironmental Management 113 760 000 2,61% 93 800 000 2,08% 99 500 000 2,01%

Financial Serv ices 30 000 000 0,69% 19 500 000 0,43% 19 500 000 0,39%

Housing and Human Settlement 563 230 639 12,94% 594 274 271 13,20% 1 613 939 000 32,54%

Information and Communication Technology 81 655 000 1,88% 84 500 000 1,88% 84 500 000 1,70%

Metro Police Serv ices 36 500 000 0,84% 43 500 000 0,97% 53 500 000 1,08%

Office of the Speaker 1 500 000 0,03% 1 500 000 0,03% 1 500 000 0,03%Office of the City Manager 62 567 000 1,44% 63 000 000 1,40% 55 967 000 1,13%

Regional Serv ice Deliv ery 340 964 000 7,83% 318 200 000 7,07% 160 000 000 3,23%

Serv ice Infrastructure 1 610 811 410 37,00% 1 778 981 369 39,51% 1 374 650 000 27,71%

Transport 1 388 407 850 31,90% 1 392 011 806 30,92% 1 384 321 000 27,91%

Other Votes 26 800 000 0,62% 24 500 000 0,54% 30 000 000 0,60%

City Strategies & Performance Management 1 500 000 1 500 000 1 500 000

Communications, Marketing and Ev ents 1 500 000 1 500 000 1 500 000

Health and Social Dev elopment 2 000 000 2 000 000 7 500 000

Sports and Recreation 15 800 000 13 500 000 13 500 000

Audit and Risk 1 000 000 1 000 000 1 000 000

Legal Serv ices 1 000 000 1 000 000 1 000 000

Office of the Chief Whip 1 000 000 1 000 000 1 000 000

Office of the Ex ecutiv e May or 1 500 000 1 500 000 1 500 000

Research and Innov ation 1 500 000 1 500 000 1 500 000

TOTAL CAPITAL BUDGET 4 353 046 899 100% 4 502 267 446 100% 4 960 477 000 100%

2012/13 MTREF

Summary of tariff increases per main service (1 July 2012):

Revenue category

2012/13 Tariff

increase

2013/14 Tariff

increase

2014/15 Tariff

increase

% % %Property rates 12,0 10,0 10,0Sanitation 12,0 10,0 10,0Solid Waste 25,0 25,0 25,0Water 10,0  10,0 10,0Electricity 12,0 12,0 13,0

Financial Sustainability Game ChangersSecurity of Revenue Project

• In the State of the City address the Executive Mayor announced the full roll out of prepaid meters.

Right to Collect on City’s Debtors Book

• Trajectory from the current methodology of handing over an account to a third party for collection and pay commission.

Integrated General Valuation Roll of 2013

• Currently the City of Tshwane is operating on 3 General Valuation Rolls. A plan is in place to have an integrated General Valuation Roll by 2013.

Financial Ratios Towards 2055Ratio Budget

Year 2012/13

Year 2022

Year 2032

Target

2055

Current asset ratio 1,11:1 1,9:1 2:1 3:1Quick asset ratio 1,03:1 1,3:1 1,5:1 1,6:1Short term loans to operating revenue 1,9% 2,5% 2,5% 2,5%

Debt Ratio 2,94:1 2,4:1 2,5:1 2,5:1Long-term debt to total revenue 37,03% 39% 40% 40%

Cash to Interest Coverage 3,04:1 4,9:1 5:1 5:1Debt to Cash ratio 2,94:1 2,1:1 2:1 2:1Borrowings to capital expenditure 0,38:1 0,32:1 0,3:1 0,3:1

Repairs and maintenance to total operating revenue 6,22% 7% 8% 8%

Net debtors to total operating revenue

21% 8% 8% 8%116 days 30 days 30 days 30 days

Return on Assets 6,34% 8% 8% 8%Asset Turnover 0.81 times 0,9 times 0,9 times 1 timeCost of funding (capital) 7,58% 5% 4,6% 4.3%Remuneration as % of expenditure 25-28% 25-28% 25-28% 25-28%

Funding of Capital Infrastructure Plans

Type of funding instruments:• Loans/Bonds: - Credit Rating

- Diversifying of borrowing portfolio - Borrowing capacity - Availability of funds in the market- Repayment of debt- Gearing ratio (Gearing of balance sheet)- Cost of funding- Optimise funding (match repayment term of

funding to life span of asset, eg roads 20 years) • Commercial Paper (Financial Instrument)• PPP’s• Sale and Leaseback / (Leasing)• Debtors book funding (Right to collect on debtor’s book)• Infrastructure Investment Funding (Mix of on and off balance sheet funding)• Off balance sheet funding• Developmental Charges• Development financial institutions (DBSA, World Bank and IDC)

Conclusion

In order to obtain the objectives of the Tshwane SA’s capital 2055, the city will have to focus on:

• Increase in infrastructure investment• Ensure sustainability• Efficiency gains• Capacitate work force• Costing various interventions and strategies• Invest in revenue generating projects• Partnership with private sector• Customer care• Strategic procurement (better value for money)• Developing a long-term financial plan that will be responding to various

challenges and strategies that will come out of consultative processes.

Thank You